Saturday, July 31, 2010

More Screwed Up Government

Who owns EdFund--the state of California, or the feds? There seems to be some controversy about this.

In these dismal economic times, Gov. Arnold Schwarzenegger has likened selling state assets to holding a garage sale to pay bills.

But in the case of EdFund, a student-loan guarantor once expected to raise $1 billion, his administration may have been trying to unload someone else's car.

In letters obtained by The Bee, the U.S. Department of Education earlier this year expressed concerns that the state was trying to sell EdFund's student-loan portfolio despite the fact that it belongs to the federal government, not California.

Last week, the Department of Education said it would block such a transaction by the state. It then went one step further, saying it would close Rancho Cordova-based EdFund by the end of October and choose a replacement guarantor on its own.

In a five-page letter, William J. Taggart, chief operating officer for the Department of Education's Office of Student Aid, cited fights between EdFund and the California Student Aid Commission, as well as attempts by the state to sell something it does not own.

Read more:
And people wonder why we conservatives believe in a limited government with enumerated powers. I don't see anything in the US Constitution pertaining to education in general or to student loans in particular.


Amerloc said...

Given the default rate on student loans, I'm not sure I'd want to try to sell them on today's market regardless.

But I'd really want the question of who actually owns them settled first.

And, yeah. Let's trust private guarantors (or anyone else) to raise that many zeroes.

Eric W. said...

My dad used to work at EdFund a few years back. Looks like he got out at a good time.

Anonymous said...

The state clearly owns EdFund. This and other news reports state that the federal government is closing EdFund. Although the letter from the Dept. of Education has not been released to the public, it would seem that these reports are drawing an incorrect conclusion.

The federal government is removing the authority for the state (through the California Student Aid Commission) to serve as a Guaranty Agency. EdFund is a separate, corporate entity created by California legislature and contracted by CSAC to provide guaranty services. The federal govt. does not have authority to order EdFund closed. But, it could, withdraw from the state of California the loans for which the state has contracted with EdFund to administer.

The reality is, there is no way to effectively transfer the loans to another as-yet-to-be-named guaranty agency by that 10/31/10. Especially considering the size of EdFund's loan portfolio.

Given the complexity of the situation (afterall, isn't everything involving the federal govt. enormous and complex?) the entire story is yet to be revealed and the ultimate resolution is yet to be determined.