The U.S. Department of Education has chosen a Minnesota company, Education Credit Management Corporation, to take over and manage California's federal student-loan portfolios by the end of October. That decision removes EdFund, the firm that has managed California's federal loans, from the federal loan program and essentially removes California from the federal student-loan quaranty business. It hasn't been smooth sailing, as EdFund has had a strained relationship with its parent agency, the California Student Aid Commission (CSAC). Some officials want to sell the agency -- but this is a move that is now blocked.
EdFund insures over $30 billion of federal student loans made by private banks through June of this year. If students default on their student loans, EdFund repays the banks and gets reimbursed close to full amount by the federal government. In turn, EdFund earns most of its revenue through collections from students in default. The federal government's official guaranty relationship is with CSAC, and EdFund operates the student-loan portfolio.
Earlier this year the federal government eliminated private banks from the federal student loan program, so students will repay their loans as EdFund's business shrinks. Without the private banks involvement by providing student-loans, agencies such as ECMC and EdFund will lose the steady flow of new student loans to guarantee, therefore shrinking the business.
Gov. Arnold Schwarzenegger and state lawmakers wanted to 'sell" EdFund as a budget solution, but the state will not be able to do that. When the governor first suggested the selling idea, he felt EdFund could get as much as $1 billion, based on advice of investment bankers.
EdFund services approximately half of all student loans taken out in California, and serves schools in all 50 states. with two-thirds of borrowers outside of California. It was formed in 1997 as a non-profit public benefit corporation. EdFund has over 300 employees, most working out of the company's Rancho Cordova office site,
The U.S. Department of Education said they removed California from the guaranty business because its state leaders clearly indicated they wanted out of that business.
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Comments
Hello Melanie,
ECMC is in a 9-12 month contract with EdFund to continue servicing the portfolio, saving a few hundred jobs in Rancho Cordova, CA.
ECMC is the Minnesota firm chosen to take over California's fed student-loan portfolio by the end of October, and their control officially removes California state from that position. ECMC contracting with EdFund does not qualify as California controlling the oversight business, which is what I reported. After the contract with EdFund expires, ECMC will use their own employees to do the job. Some EdFund employees could move to ECMC. Thanks for visiting and reading.
Just an FYI , EdFund is not being removed , please read the article , such as in the Sacramento Bee, EdFund is contracting for the next 9-12 Months with ECMC (aditional reneweals will follow based on Performance) and will be indipendent from the California Sutdent Aid Commission
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