U.S. Cancels Auction for Parent Loans

April 10, 2009

What if the federal government held an auction and nobody came? That's essentially what happened this month, and the U.S. Education Department announced Thursday in a message to student loan providers that it was canceling its Congressionally mandated plan for state-by-state competitive bidding processes for the right to make federal student loans for parents. The auction, which was enacted as part of budget reconciliation legislation in 2007, was set to take place next week. But as the law was written, the auctions were to be held only in those states that received at least two requests from lenders -- and not a single state received two such requests, Daniel T. Madzelan, a senior department official, said in an e-mail message Thursday. Most states received no requests at all, he said. The auction idea had become increasingly fraught because of the economic downturn and with the Obama administration contemplating much broader changes in the federal student loan programs. Democratic leaders in Congress introduced legislation late last month that would have postponed the auction for a year -- which may not be necessary given the department's announcement Thursday.

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