(Host) Upheaval in credit markets has thrown many college loan programs into chaos, just as students are making choices about where they’ll study next year.
Vermont’s prime student loan agency says it has avoided that upheaval because it’s struck a deal with a bank for $390 million in financing.
VPR’s Ross Sneyd reports.
(Sneyd) Many programs around the country have stopped making loans for the next school year because a key bond market has collapsed.
That market was where most agencies, including the Vermont Student Assistance Corporation, raised the money to then lend to students and their families.
So VSAC President Don Vickers and his staff have spent weeks searching for a new source of money.
(Vickers) "We’ve called it our dialing for millions campaign. We needed $390 million. The staff at VSAC got on the phone and we started calling any bank that we could to see if they would be interested in entering into some sort of an arrangement with us.”
(Sneyd) The calls went everywhere from London to New York. But the key call went just across the river from Winooski, to Burlington.
Key Bank of Vermont expressed interest and Vickers says after a month of negotiation, a deal was struck this week.
(Vickers) "This means that VSAC will be open for business next fall. We will be making loans to Vermonters. This is not the norm across the country. And we’re very pleased to be making this announcement today.”
(Sneyd) Loan agencies such as VSAC don’t have adequate cash reserves on their own to lend the hundreds of millions of dollars that they do.
So they’ve relied on something known as "auction-rate bonds.” But then, the financial securities industry went into a tailspin. And the auction bond market collapsed.
Student loan authorities in Massachusetts, Pennsylvania and other states have simply stopped lending money.
VSAC’s deal with KeyBank headed off a similar fate for Vermont families. KeyBank will provide VSAC with a letter of credit and a direct loan.
Governor Jim Douglas helped Vickers announce the deal. He says VSAC is a lifeline to Vermont families, especially in an economic downturn.
(Douglas) “So having VSAC available with grants, with low-cost financing, is critical to ensuring that each young Vermonter has a chance to achieve his or her goals beyond high school.”
(Sneyd) VSAC expects to give loans to 70,000 people for the next school year. It will also hand out $20 million in grants and $6.5 million in scholarships.
For VPR News, I’m Ross Sneyd.