Federal officials are blocking Gov. Arnold Schwarzenegger's plan to sell the state's student loan guarantee operation to help address California's $19 billion deficit.
Schwarzenegger had initially hoped to sell the nonprofit EdFund for as much as $1 billion to help fill the state's budget hole when he introduced the proposal three years ago.
The administration later reduced the anticipated sales price by half and told state lawmakers as recently as last month that the state was on track to sell EdFund, pending federal approval.
But in a letter obtained Friday, the U.S. Department of Education said the federal government plans to terminate its agreement with the state by October. The department has a say over the student loan guarantee agency because EdFund administers federally backed student loans.
In a letter dated July 20, William Taggart, the Department of Education's chief operating officer, told state officials that U.S. Education Secretary Arne Duncan plans to find a replacement agency.
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