Authority will stop offering federal student loans July 1
The nonprofit Massachusetts Educational Financing Authority, which provides student loans, said yesterday that on July 1 it will stop offering federal student loans.
That will affect thousands of Massachusetts students: MEFA made federal loans to 14,700 in the current school year.
The authority, which uses bond financing to make student loans, has about $300 million in federal loans on its books, including Stafford and Plus loans, out of a total $1.5 billion. The other $1.2 billion are private loans.
"Because of the unprecedented disruptions in the capital markets, it really has prevented us from securing funds for our [federal loan] program," said Thomas Graf, MEFA's executive director.
The authority will continue to offer private student loans.
A Stafford loan covers from $3,500 in tuition for a freshman to $5,500 for a senior and is offered at a low 6.8 percent interest rate. Many families apply for these loans, as well as for additional private loans, to pay for school.
MEFA is one of many entities that can make certain kinds of federal loans.
Students, families, and financial aid directors at colleges across the state have been waiting anxiously for word of the agency's funding for next year's loans. MEFA had warned since March that it was unsure how much money it would have to lend for the 2008-2009 school year, due to the trouble in the broader credit markets.
MEFA decided it would not be able to raise the money to make the federal loans in its usual way, through a bond issue. However, Graf said he remains "very hopeful" that MEFA will be able to raise money through bonds to finance its private loan business.
MEFA is the latest in a slew of lenders to cut back or leave the business entirely. Last week, a large nonprofit student loan guarantee firm in Boston, the Education Resources Institute Inc., filed for bankruptcy protection, causing disruptions for other student loan lenders.
In Washington yesterday, Bloomberg News reported that the Senate Banking Committee's chairman, Christopher Dodd, backed a call by SLM Corp. (Sallie Mae) for the Treasury to make more money available for student loans.
Dodd, a Connecticut Democrat, urged the Treasury's Federal Financing Bank to "prime the pump of liquidity in order to help avert a funding crisis."
Democrats have introduced several proposals to help college students borrow money as credit markets tighten.
Beth Healy can be reached at bhealy@globe.com.
