Selling EdFund

Via New America Foundation, Schwarzenegger is considering selling California’s state guarantee agency, EdFund, to a private, potentially for-profit, loan company. In the federal loan program, guarantee agencies not only insure student loans, they also provide oversight by ensuring that lenders perform the required due diligence to collect loans and prevent defaults.

The Institute for College Access and Success put out a brief on the potential sale of EdFund back in 2005—a must read if you’re interested in this issue. In it, they describe why EdFund’s sale could be detrimental to California’s taxpayers.

I describe (shameless plug) in my recent report on the student loan industry how close ties between private, for-profit loan companies and guarantee agencies create a serious conflict of interest in the oversight of the federal loan program. With recent headlines on abuses within the industry, the Department of Education needs to keep a close eye on this exact kind of transaction.