Magazine article University Business

Access to Student Loans Protected: Congress and the White House Act in the Wake of the Credit Crunch

Magazine article University Business

Access to Student Loans Protected: Congress and the White House Act in the Wake of the Credit Crunch

Article excerpt

INSTABILITY IN THE FINANCIAL markets that has rocked the national economy in recent months will have no impact on federal student loans if action by Congress and words from the Bush administration this spring are any indication. In April, the House of Representatives overwhelmingly passed legislation to ensure that families will continue to have access to federal college loans even if stress in the credit markets leads a significant number of lenders in the federally guaranteed student loans programs to substantially scale back their lending activity.

The administration promptly responded with a statement supporting the measure, asserting that it was "committed to ensuring that students and their parents have access to the federal student aid they need to pay for college this fall."

As the American Council on Education (ACE) has noted, most higher education institutions have not experienced significant problems with student loan availability. Still, Congress and the administration are working together to put in place an infrastructure and processes that can be put to use immediately should the need arise.

It has already risen in at least one segment of the higher education market-for-profit colleges and universities, according to Harris N. Miller, president of that segment's trade group, the Career College Association. "The student lending market is having a harmful impact now, not at some point down the road," he wrote to House and Senate education committee leaders.

Under current law, dependent undergraduates can borrow $3,500 in unsubsidized federal loans during their first year in college, $4,500 during their second year, and $5,500 during their final two years. They can borrow up to $23,000 total in federal student loans (subsidized and unsubsidized). Independent students can borrow up to $46,000.

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The legislation--the Ensuring Continued Access to Student Loans Act of 2008 (H.R. 5715), sponsored by Rep. George Miller (D-Calif.), chairman of the House Committee on Education and Labor--would increase the annual loan limits for federal unsubsidized loans by $2,000 for all students and the aggregate loan limits to $31,000 for dependent undergraduates and $57,500 for independent students.

Also under current law, parent borrowers must begin repayment of federal PLUS (Parent Loan for Undergraduate Students) loans 60 days after disbursement. The new legislation would give parents the option to defer repayment until up to six months after their children leave school.

Further, while current law makes parents with an adverse credit history ineligible to receive a PLUS loan except under extenuating circumstances, the House-passed bill would temporarily classify delinquencies of up to 180 days on home mortgages as an extenuating circumstance. That would make it possible for parents feeling strained by the housing market to secure loans for their children.

The legislation would give the secretary of education new tools to safeguard access to student loans, too. It would clarify that the secretary is required to advance federal funds to guarantee agencies operating as lenders of last resort in the event that they do not have sufficient capital to originate new loans. It also would give the secretary temporary authority to purchase loans from lenders in the federal guaranteed loan program if it is determined that lenders were unable to meet the demand for loans.

In its statement, issued by the Office of Management and Budget, the administration said it appreciates that the bill provides the "flexibility" the secretary would need to ensure that families continue to have access to federal student loans. While the statement supported the provisions of the measure that would allow an entire higher education institution to be designated eligible for Lender of Last Resort (LLR) programs if they would be needed, it recommended that the authority be temporary. …

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