MEFA again able to offer student loans

Funds for academic year to carry 7.75% fixed rate

The Massachusetts Educational Financing Authority said yesterday that it completed a $400 million bond offering and will now be able to offer student loans for the remainder of the 2008-2009 academic year.

The authority said its loans to undergraduate and graduate students will carry a 7.75 percent fixed rate, substantially lower than the federal government's 8.5 percent rate on PLUS loans for parents.

MEFA was unable to raise funds in time for the start of the school year due to turmoil in the student loan industry and the shutdown of auction-rate securities, a part of the bond market it had long used for borrowing. The authority's inability to offer the fixed-rate loans affected thousands of Massachusetts families who in the past relied on the borrowing. Last year, nearly 40,000 students took out MEFA loans.

"On behalf of MEFA and the families we serve, I extend our gratitude to Governor [Deval] Patrick and his administration for their strong support and cooperation through this unprecedented time in student lending," MEFA executive director Thomas Graf said. The governor's assistance "strengthened our position in the capital markets," he added.

MEFA managed to complete its financing amid Wall Street's meltdown over the weekend. Morgan Stanley was the lead underwriter. Goldman Sachs and JPMorgan Chase & Co. also participated. About 10 institutional investors bought the bonds. The authority is paying a 6.2 percent interest rate on the money it is offering for student loans.

With the fall semester already underway, most of the money in MEFA's replenished coffers likely won't be tapped until the spring semester, according to Graf. But he added that some families may elect to refinance higher rate loans they obtained for the current semester.

Patrick, who last month was unable to persuade the state pension fund to provide loan funds for MEFA, called yesterday's development "very good news for Massachusetts students and families."

Beth Healy can be reached at bhealy@globe.com.