Policymakers Seek to Ensure No Disruptions in Student Loan Availability

By Dervarics, Charles | Diverse Issues in Higher Education, May 15, 2008 | Go to article overview

Policymakers Seek to Ensure No Disruptions in Student Loan Availability


Dervarics, Charles, Diverse Issues in Higher Education


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 long-term remedies.

"As of today, no student has been unable to find a lender for a federal student loan," says Rep. Ruben 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. …

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