Student-loan legislation moves forward

The bill, designed to encourage lenders to keep offering federal loans to students, won bipartisan support in Congress.

By Stacy Teicher Khadaroo | Staff writer of The Christian Science Monitor

from the May 2, 2008 edition

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In moving this week to shore up the student-loan market, the federal government aims to avert a credit crunch that some warned could make it harder for students to borrow for college.

On Thursday, Congress sent to President Bush for his signature a bill that is designed to give lenders the confidence and the liquidity they need to continue providing federal loans to students. It would also increase federal loan limits to lessen the fast-growing reliance on private loans.

The news comes just in time to buoy thousands of families weighing college and financial-aid decisions.

"This is an important step and ensures that we will not have any major disruptions in the availability of student loans this fall," says Robert Shireman, executive director of the Project on Student Debt in Berkeley, Calif.

The bill cleared the Senate unanimously Wednesday after a few amendments were made to the House version, which was passed April 17. The House approved the new version May 1. It would give the US Education Department temporary authority to buy student loans from lenders that participate in the federal guaranteed loan program. Lenders sell about 90 percent of student loans to get the cash flow to make more loans. But "the economy's liquidity problems have made it virtually impossible for lenders to sell their loans," says Terry Hartle, senior vice president of the American Council on Education (ACE) in Washington. If necessary, the department could become that missing secondary market.

The secretary of Education might not need to exercise this option, but just the fact that she could should inject confidence into the market, Senate aides say. The bill requires that government officials set prices for the loans that make this provision cost-neutral.

These loans are already federally guaranteed. The government wouldn't be buying subprime loans, for instance, "so this was an easier decision than some of the decisions Congress has been struggling with on mortgages, where we don't want the government validating bad lending decisions," Mr. Shireman says.

Support for the bill

The Ensuring Continued Access to Student Loans Act of 2008 was originally put forward by Rep. George Miller (D) of California, chairman of the House Education and Labor Committee. President Bush and Secretary Margaret Spellings have both voiced support for the legislation.

Before the Senate vote, Sen. Edward Kennedy (D) of Massachusetts noted one reason lawmakers tried to move quickly: Nearly 50 lenders representing 14 percent of the federal student-loan market have dropped out of the federal loan program during the recent credit turmoil. "We can't afford to wait for a full-blown crisis before we act," his statement said.

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