Congress Moves to Avert Student Loan Access Crisis

Prompted by the departure of dozens of private lenders from the federal student loan program in recent months, members of Congress are moving to ensure access to student loan dollars. 

The U.S. House Committee on Education and Labor has reported to the full House legislation that seeks to ensure loan dollars are available through the Federal Family Education Loan Program, the federal government’s largest student aid program, and to curb the borrowing of private education loans.

The Ensuring Continued Access to Student Loans Act of 2008, introduced by Rep. George Miller, D-Calif, who chairs the committee, and Rep. Rubén Hinojosa, D-Texas, contains the following provisions:

• Increases annual unsubsidized Stafford loan limits by $2,000.
• Increases aggregate Stafford loan limits for dependent undergraduates to $31,000 and for independent undergraduates to $57,500.
• Provides a six-month grace period and in-school deferment, based on the student’s enrollment, for parent PLUS loans.
• Permits borrowers to qualify for PLUS loans as an extenuating circumstance if they are 180 days or less past due on their home mortgage payments.
• Permits lender of last resort eligibility to be determined on a campus-wide basis, rather than based on the inability of individual students to find lenders. Federal law permits student loan guarantors to serve as or designate lenders for otherwise-eligible borrowers who cannot locate lenders willing to make FFELP loans to them.
• Clarifies the authority for the U.S. secretary of education to make advances of federal funds to guarantors to meet lender of last resort requirements. Education Secretary Margaret Spellings announced on April 4 that she already has the authority to make such advances under current law.
• Provides temporary authority for the secretary of education to purchase FFELP loans to provide liquidity to the program.
• Urges federal agencies or federally chartered organizations, including the Federal Financing Bank, Federal Reserve and Federal Home Loan Banks, to consider using their authority to ensure capital is available for making student loans.

The legislation may be attached to another bill or considered by the full House as standalone legislation. The House measure is similar to legislation introduced April 3 in the U.S. Senate by Sen. Edward Kennedy, D-Mass.

Separately, Rep. Paul Kanjorski, D-Pa., who chairs the House Financial Services, Capital Markets, and Government Sponsored Enterprises Subcommittee, has introduced emergency legislation to provide liquidity to the FFELP. Kanjorski’s bill would provide temporary authority for Federal Home Loan Banks to invest in student loan-related securities with their surplus funds, accept student loans and student loan-related securities as collateral, and provide secured advances to member banks to originate student loans or finance student loan-related securities.

Kanjorski acted after Federal Reserve Chairman Ben Bernanke declined Kanjorski’s earlier request for direct action by the Fed to assist in resolving the liquidity crisis in the FFELP.