Maintained for Historical Purposes

This resource is being maintained for historical purposes only and is not currently applicable.

During the Quarter Ending: December -31-2008

Quarter: December 31, 2008

Posted Date:January 16, 2009

Subject: Federal Family Education Loan Program Special Allowance Rates for the Quarter Ending December 31, 2008

Background

In calculating quarterly Special Allowance rates, the Department is required, under section 438(b)(2)(I)(i)(I) of the Higher Education Act (HEA), to determine "the average of the bond equivalent rates of the quotes of the 3-month commercial paper (financial) rates in effect for each of the days in such quarter as reported by the Federal Reserve in Publication H-15 (or its successor) for such 3-month period."

Since October 1, 2008 (the beginning of the quarter ending December 31, 2008), there have been 33 business days (out of 62 business days) when no daily commercial paper (CP) rate was printed in Publication H-15. Given market conditions, the Federal Reserve instituted the Commercial Paper Funding Facility (CPFF) on October 27, 2008. On January 5, 2009, the Federal Reserve announced and included in Publication H-15 Commercial Paper Funding Facility (CPFF) rates. The Federal Reserve provided this data back to October 27, 2008, the date of the inception of the CPFF.

Calculation of Special Allowance Rates

To address the lack of a CP rate for 33 business days during the fourth quarter of 2008 and to meet its obligations under section 438 of the HEA for the quarter, the Department used, in its calculations, the "3-month nonfinancial or financial [rate] posted by CPFF . . . with surcharge" which is found under the "Commercial Paper" heading of Publication H-15. This CPFF rate was used for those business days during the fourth quarter of 2008, on or after October 27, when no "3-month financial" CP rate was published (as indicated by "n.a." in Publication H-15). For days prior to October 27 when no 3-month financial commercial paper rate was published, the Department carried forward the previous business day's CP rate (consistent with Department practice).

For example, on November 25, 2008, the published CP rate was 1.7 percent; the CPFF rate for that day was 2.48 percent. In that case, the Department used 1.7 percent as the applicable rate for November 25 in its Special Allowance rate calculation. However, on November 26, there was no CP rate published ("n.a."); the CPFF rate was 2.42 percent. Thus, for November 26, the Department used 2.42 percent in its Special Allowance rate calculation.

Accordingly, using the above approach for the quarter ending December 31, 2008, the "average of the bond equivalent rates of the quotes of the 3-month commercial paper (financial) rates in effect for each of the days in such quarter" is 2.58 percent.

Calculations Under the Master Participation Agreement(s) for 2008-2009 Loans

Pursuant to the Master Participation Agreement(s) under the Department's loan participation purchase program for 2008-2009 loans, the 2.58 percent rate is also used to determine the Participant Yield (i.e., yield owed the Department). The calculated Participation Yield rate will be formally communicated to program participants via an Electronic Announcement on the Department's Ensuring Continued Access to Student Loans website (http://www.federalstudentaid.ed.gov/ffelp).

Treasury Bill Rate

For some loans, pursuant to section 438, the Special Allowance rate is calculated by using the average of the bond equivalent rates of the ninety-one day Treasury bills as published by the Department of the Treasury. For the quarter ending December 31, 2008, the average of the rates is 0.35 percent.

Attachments

Attachments A, B & C contain the quarterly special allowance rates computed pursuant to section 438. Attachment D contains the bond equivalent rates of the 91-day Treasury Bills auctioned during the quarter.

Accounting Division
Office of the Chief Financial Officer

Last Modified: 01/15/2009