U.S. House Rides to Rescue Debt-Laden Students

Students loaded down with debt that are seeking loans to finish school may have found some help yesterday after the U.S. House passed a bill designed to ease the credit squeeze. The timeliness of the measure was highlighted by the same-day announcement by Bank of America that it was pulling out of the private student lending business.

The House overwhelmingly passed HR 5715, or the Ensuring Continued Access to Student Loans Act of 2008, by a vote of 383-27 Thursday. The Senate Committee on Health, Education, Labor and Pensions has been sent a similar bill that is sponsored by Sen. Edward Kennedy, chair of the committee. 

The approval of 5715 comes a day after Sen. Chris Dodd (D-Conn.) said in Senate testimony that college students could be scrambling to find funding for their education this fall (“Student Loans Drying Up, Dodd Warns,” April 17).

The legislation could make it easier for college students to get loans despite the exit from the business by such prominent players as BofA, Citi, and others. Dodd said that more than 50 lenders of federally-guaranteed loans and nearly 20 additional private student loan issuers have indicated that they intend to suspend their lending activities.

Meanwhile, state loan guaranty agencies in Pennsylvania, Michigan, Montana and Texas have closed or put on moratorium their student loan programs, according to Dodd.

Dodd reported that these lenders account for about 15 percent of the federally-guaranteed loan market and make up two-thirds of the loan consolidation business.

The House legislation gives the U.S. Department of Education the authority until July 2009 to purchase Federal Family Education Loans (FFELs) from lenders if it’s determined there is inadequate availability of loan capital to meet the demand for such loans. However, the legislation prohibits the purchases in resulting in any cost to the federal government.

The legislation also enables the education department to advance needed funds to guaranty agencies acting as lenders of last resort in situations where credit may otherwise be unavailable.

The House measure also amends the Higher Education Act of 1965 to increase the maximum annual and aggregate unsubsidized Stafford loan amounts that may be provided to undergraduate and graduate students under the FFEL program.

Under terms of the legislation, parent borrowers of PLUS FFELs have the option to defer loan principal repayment for up to six months after the student reduces her class load by half, or presumably after graduation or leaving school.

Additionally, lenders that made loans from July 2008 through June 2009 can provide credit under the FFEL or Direct Loan programs to poor credit risk borrowers of PLUS loans who are up to 180 days delinquent on their home mortgages, as long as the borrower meets certain qualifying requirements.