The federal government has formally announced an end to California’s role servicing guaranteed federal student loans, bringing an end to a program that state budget writers had viewed as a billion-dollar cash cow.
California’s 2007 budget assumed the state would receive $1 billion for selling the assets of EdFund, the nonprofit affiliate that administered federal loans backed by the California Student Aid Commission.
Federal officials objected.
According to a statement by the commission, the U.S. Department of Education informed the state in July that it viewed the student loan program assets as federal assets, and that the commission’s role as a loan guarantor would be eliminated.
On Monday, the federal government announced that it has selected Minnesota-based Educational Credit Management Corp. to oversee the administration of federal student loans made to borrowers under the Federal Family Education Loan program in California.
Under the Obama administration, the federal government has started issuing such loans directly, but there is still a large pool of outstanding loans that need servicing.
According to ECMC, between 1996 and 2010 the federal government selected it to replace the services of student loan guaranty agencies in Virginia, Oregon, and Connecticut.