Education Department Ready to Address Potential Student Loan Access Issues

Representatives of the U.S. Department of Education told members of a U.S. House committee last week that the department would be ready to cope with any potential gap in access to student loans brought on by the credit crunch.

“We will be ready,” Education Secretary Margaret Spellings assured members of the U.S. House Committee on Education and Labor when asked about the department’s plans to deal with potential student loan access problems brought on by the nation’s credit crunch. But both Democrats and Republicans on the panel urged the department to quickly work out contingency plans to deal with any potential student lending “gap.”

Spellings told the committee that, although some lenders have temporarily or permanently reduced their participation in the Federal Family Education Loan Program, “other lenders have stepped in to meet student needs.” The Department, Spellings said, is monitoring the situation and any potential impact on students.

Members of the committee, however, urged the secretary to ensure that operational details are in place soon for two backup provisions that would help families cope with potential inability to access student loan dollars brought on by malfunctioning capital markets. One provision would permit guarantors to serve as or arrange for lenders of last resort to assist otherwise-eligible students who were unable to obtain FFELP loans. The other would permit FFELP schools to access the direct loan program.

Education Department officials told the panel that they currently are reviewing guarantor procedures for implementing lender of last resort processes and that Department would issue guidance to the guarantors during the next week.

Terry Muilenburg, USA Funds^® senior vice president, government and industry relations, advised the panel that guarantors stand ready to work with Congress, the Department, lenders, schools and others to ensure access to student loans. Muilenburg encouraged the department to permit eligibility for lender of last resort loans to be determined by schools rather than by individual borrowers, and to ensure that lender of last resort procedures accommodate today’s electronic loan processes.

Noting that lender of last resort loans should be made only as a last resort, Muilenburg also urged the Bush administration, with support from Congress, to examine all available alternatives to address the liquidity issues in the credit markets as a preferred means of addressing the challenges many education lenders currently are facing.