The Education Department said Wednesday it would provide $25 million to help servicers of student loans meet new federal regulations pushed by the Obama administration.
The money will be available to banks and other private financial firms that made or serviced loans in the Federal Family Education Loan Program (FFEL). The Obama administration pushed successfully this year to change the student loan market by removing private lenders.
Under new regulations, all student loans will now be made through the Direct Loan Program, in which students borrow from the government instead of sometimes from private lenders. The change was a high priority for the Obama administration and most congressional Democrats.
The shift is expected to save the government $68 billion over the next 11 years, according to the Congressional Budget Office (CBO).
The Education Department said the $25 million would be used to help servicers retrain and re-deploy workers as the companies comply with new federal laws.
The $25 million fund will favor workers in regions with high unemployment rates, the department said.
Congress authorized a total of $50 million for the fund. The remaining $25 million will be allocated in fiscal year 2011, according to the department.
Companies or organizations that serviced FFEL loans on January 1, 2010, are eligible to apply for funds and must meet an August 6, 2010, application deadline.
Rep. George Miller (D-Calif.), chairman of the House Education and Labor Committee, praised the new money. He said Education Secretary Arne Duncan, "has taken an important step forward today for America’s workers and the future of this country."
“By getting this money out the door quickly, he’s accomplished the critical tasks of both helping to save jobs and retrain and retain workers while also ensuring our student loan programs are operating in the best interest of students and families working hard to pay for college," Miller said.
An official with private loan giant Sallie Mae said the end of the FFEL program will result in significant job losses and said it is too soon to determine how the new fund will affect its employees.
“We are actively evaluating the requirements to see how it could benefit employees and mitigate job losses,” said Conwey Casillas, vice president of public affairs at Sallie Mae.
The company is in the process of restructuring in response to the legislation. Sallie Mae is shutting down two centers in Panama City, Fla.; and Killeen, Texas; and is moving its headquarters from Reston, Va., to Newark, Del.