Washington Update
Policymakers Seek to Ensure No Disruptions In Student Loan Availability
By CHARLES DERVARICS
May 15, 2008, 13:10


Congressional leaders are considering a variety of bills to impede a late summer student loan crisis.

For many policymakers and worried families, the countdown to a possible fall student loan crunch has begun. With July and August being among the busiest months for the student loan business, key lawmakers — including many Hispanic and Black leaders — are increasingly concerned that needy students will not have sufficient access to credit to help them attend college in the fall.
Since the current environment is largely uncharted territory for lenders and loan guaranty agencies, many experts are looking to Congress to step in with short- and longterm remedies.

“As of today, no student has been unable to find a lender for a federal student loan,” says Rep. Rubén Hinojosa, D-Texas, chairman of the House postsecondary education subcommittee. “However, we are not going to wait until students and families are denied loans before putting safeguards in place.”

So far, 61 lenders have left the Federal Family Education Loan program (FFEL), the chief program for subsidized student loans, says Mark Kantrowitz, founder of FinAid.org, a service that monitors the student credit markets. Among the top 100 lenders by volume, 22 have left the program, he says.

Lenders increasingly cite credit difficulties as a result of home foreclosures and mortgage industry problems. Some also have had to write off losses from private educational loans at the same time their federal subsidies have declined as a result of the College Cost Reduction Act.

And the U.S. Department of Education announced in late April that it lacks authority to bail out student loan companies. “There’s no solution coming out of the administration,” Kantrowitz says. “The ball is now in Congress’ court.”

The House and Senate have stepped up to the plate by approving the Ensuring Continued Access to Student Loans Act, which would increase the amount of money students can borrow annually for college. Proponents say the provision means some students will have less need for riskier private loans, which carry higher interest rates. Other provisions of this bill would help struggling families and lenders. For example:

• Families would have more time to repay their federal parent, or PLUS, loans and could continue to borrow even if they fall behind in mortgage payments. Under current law, borrowers can seek PLUS loans regardless of need, but they cannot access such loans with bad credit.

• The secretary of education would get the power to advance money to guaranty agencies if they lack the capital themselves to issue new loans.

• The secretary also could purchase existing loans from lenders, who could then originate new loans.

“Nothing is more important than reassuring students and families that there will be no disruption in the availability of federal student loans, regardless of what happens in our financial markets,” Hinojosa says.

At press time, the House was expected to approve a slightly amended version of the bill and send it to President Bush for his signature.

Also on the House’s docket is the Emergency Student Loan Market Liquidity Act, which would allow federal home loan banks to invest surplus capital in student loans. Home loan banks could also advance money to their members for student loans.

“The student loan market currently faces severe liquidity problems and cannot access capital,” says Rep. Paul Kanjorski, D-Pa., who chairs a House financial services subcommittee. He introduced his bill after the Federal Reserve said it cannot provide extensions of credit to troubled student lenders.

Advocates for historically Black colleges say they have another potential remedy to the problem: more increases in Pell Grants so needy students will have less need for loans.

“We applaud Congress’ attempts to address student lending,” says Edith Bartley, government affairs director for the United Negro College Fund. Although HBCUs keep tuitions low, the typical student has $5,000- $6,000 a year in unmet need and graduates with $18,000 in loans, she tells Diverse.

The higher education bill now before a House/Senate conference could increase the maximum Pell Grant to $9,000. The current top grant is barely half that level. A Pell increase could stem some of the concern about credit markets, Bartley says. As it stands, students at HBCUs “are going to be impacted significantly by the current economic climate.”

As for those who must borrow for college, FinAid.org’s Kantrowitz suggests trying to minimize debt. Students should use federal loans first and get a co-signer for any private loans with higher interest rates.

For their part, colleges should consider switching from FFEL to the Direct Loan program, which relies directly on capital from the federal government. Congress should monitor the issue through the summer. “They need to act to prevent a crisis,” he says. “They can’t put a Band-Aid on it.”
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