In an email to members, NASFAA Chairman Phil Day lauded the passage of the Wall Street Rescue Bill, noting that it includes the ability for Treasury to purchase a wide range of assets, including FFELP and Private Student Loans. Dr. Day noted that it is not clear how Treasury would go about purchasing student loan assets.

We expect that student loan assets will follow the Reverse Auction model that Treasury has proposed for mortgage assets. In this format, Treasury will create proper incentives for investors looking to sell their assets. For a given CUSIP (Unique identifier for ABS securities), the investor will bid the amount it is willing to sell for. Treasury will review all bids for a given CUSIP and will accept the lowest bid. On the one hand, the investor should bid high because they want to get as much money as possible. On the other hand, they need to be realistic about the asset's actual (what Fed Chairman Bernanke calls "hold to maturity") value or else they will lose the auction to another lower bidder. Investors also have to consider that the final bid is Treasury's way of establishing price discovery for those assets. The winning bid is what the remaining bond holders will have to use for their mark-to-market accounting of their assets. So theoretically, this is a very effective and orderly way to establish a reasonable price baseline for these assets.

But with $700 billion in taxpayer money on the line, once pricing is discovered for these assets, we encourage Treasury to take additional steps to thoroughly vet the credit quality of these assets. With a weakened economy, Treasury should make every effort to understand the current state of the borrower's credit and re-score the credit worthiness of the borrowers in the pools they purchased. This would permit Treasury to better project the true hold-to-maturity value of these assets. Treasury could also publish this analysis back to any interested investor. This would bring much needed transparency to these assets and make it more likely that investors would want to purchase some of these assets back from Treasury, hopefully at a higher price, once the economy improves.