State student loan guarantor EdFund came under fire in 2005 for operating too much like a private company. Now Gov. Arnold Schwarzenegger wants to turn the Rancho Cordova-based nonprofit into one.



To help close the state's budget gap, the Republican governor proposed Monday to sell EdFund for $1 billion on the private market. EdFund maintains a $27 billion loan portfolio and insures loans for roughly half of California college students who receive aid through federal programs.



The proposal drew immediate criticism from Democratic leaders, who accused the governor of taking a piecemeal approach by selling state assets for a one-time budget fix. One consumer group also warned that selling EdFund would reduce oversight of student loans in California just as Congress is investigating abuses in the private student loan market.



But Schwarzenegger insisted that EdFund's role as a loan guarantor is limited in scope by federal regulations and that students would see no difference in the handling of their financial aid.



"This is why in this particular case (EdFund) will not go and give loans or make decisions on the loan rates or anything like that," Schwarzenegger said Monday in a budget press conference. "This is just a loan guarantee, so therefore it does not affect the students."