Gov. Deval Patrick announced on April 1 that the Massachusetts Educational Financing Authority (MEFA) would make $300 million in fixed-rate student loans available to undergraduate and graduate students who live in or attend school in Massachusetts.
The new initiative comes as part of Patrick's Massachusetts Recovery Plan, and MEFA is already seeing results.
"Ever since the announcement was made by the governor, we've had a really good response of people applying and getting accepted," MEFA spokesperson Jessica Belt told the Daily.
MEFA, the state's largest student-loan company, will also receive $270 million in tax-exempt bonds for future education loans. It will provide undergraduate students loans at a 7.75-percent interest rate for the 2009-2010 academic year.
While these loans are not part of the Tufts financial aid package, they provide viable options for families looking to finance tuition.
"When we do financial aid, there is almost always a parents' contribution, and parents will be able to use those loan funds to pay for their contribution," Director of Financial Aid Patricia Reilly said.
Unlike Federal Parent PLUS Loans that are a major source of parent borrowing, MEFA is a nonprofit state enterprise that provides private non-government loans, according to Reilly.
"Instead of issuing profits to shareholders like Sallie Mae … MEFA takes any profits it generates after operating expenses, and uses that to reduce the interest rates for students borrowing loans," Christopher Penn, a spokesperson for the Student Loan Network, a student loan provider and source of information on student loans, told the Daily.
The MEFA rate jumped slightly from the 2007-2008 academic year rate of 6.39 percent.
Yet despite the jump, MEFA's standard interest rate of 7.75 percent remains lower than the standard federal student loan rates.
"Two years ago, the rate was much better [than other loan issuers], and we had a lot of MEFA borrowers," Reilly said. "This year, their rate is closer to the other alternatives … The MEFA rate is slightly lower, but their fee is slightly higher."
Last year, many students were forced to look for loans elsewhere after discovering that their MEFA loan applications would not be accepted until mid-September due to a delay in funding.
Due in part to a recovering market, however, the nonprofit state authority was able this month able to attain funding, according to Penn.
"The market for investors [in MEFA] who are interested in buying those IOU notes is starting to recover," Penn said. "People are coming back into the marketplace and looking for safer investments, bonds, which are essentially backed by these loans, and seem safer than the traditional market of stocks."
Reilly said that she is happy that the nonprofit state authority is back on track.
"MEFA has traditionally been our most popular lender," Reilly said. "Our families have found they do give excellent consumer service, and have been very happy with them and they are a good resource for students."
Only 25 Tufts students have gotten loans from MEFA this academic year, according to Reilly. That number stood at 250 last academic year.
"I'm assuming it's going to be well above the 25 [this year], but I don't know if it's going to reach levels above the 250," Reilly said.
Belt, the MEFA spokesperson, encouraged students to apply for the loans sooner rather than later. She said the number of lenders is really hard to predict.
"We have $300 million and we anticipate it will carry us through the academic year," she said.
Other educational institutions in the state will benefit from the governor's plan from the federal education recovery funds, too. He has outlined funding for K-12 schools, public colleges and universities, as well as grants for preschool and special education programs.
