Another state agency stops writing college loans

The Massachusetts Educational Financing Authority, which secured more than $500 million in educational loans last year and services loans for 40,000 students, announced yesterday that it would not offer loans for the coming academic year. “It’s really the capital markets. It’s a global situation,” said Jessica Belt, a MEFA spokeswoman. In an e-mail to insidehighered.com, Kathryn Osmond, executive director of student financial services at Wellesley College, wrote “an economy that is in such a tailspin that it affects a critical agency like MEFA is an economy that scares me.”

The student-loan market everywhere began to face problems late last year, falling victim to the subprime mortgage crisis. Many lenders use auction-rate bonds and other long-term debt to underwrite student loans, the demand for which has been dried up due to a lack of investor interest. Since then, agencies like the one in Massachusetts have had problems refinancing their old auction-rate bonds, and they actually had to reverse themselves on private loans because the agency's bond insurer faced a possible credit-rating downgrade that would have increased the cost of floating new debt.

In an effort to continue lending here in Arkansas, state fiscal officers agreed in April to stand in for skittish investors and loan the Arkansas Student Loan Authority $80 million. Here's more from today's New York Times.