Sept. 15

Extended Relief for Student Borrowers (and Lenders)

Congress and the U.S. Education Department have gotten generally positive reviews for their collective response to the threat last spring that turmoil in the U.S. financial credit markets would greatly restrict students’ access to federal student loans. The combination of “emergency” legislation passed by Congress and the Bush administration’s array of steps to carry it out have been seen as successfully ensuring that borrowers who enrolled in college this fall continued to have access to the federal student loan funds they need. (Debate continues over the extent to which students and families are struggling to find the private, or alternative, loans they need.)

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As one student aid cycle concludes, though, another is just beginning. And with financial aid officials and lenders arguing that students beginning their planning for the 2009-10 academic year will face continuing uncertainty about the availability of federal guaranteed loans, Democratic and Republican leaders in the House of Representatives have agreed to extend for a year the “temporary” law they approved last spring.

Spokeswomen for Rep. George Miller (D-Calif.) and Rep. Howard P. (Buck) McKeon (R-Calif.), the chairman and senior Republican, respectively, on the House Education and Labor Committee, confirmed that the full House would take up the one-year extension as soon as today under legislative procedures, known as “suspension of the rules,” that are generally reserved for noncontroversial matters.

Whether the extension will be totally noncontroversial is up for some debate. While the original legislation was portrayed as necessary to ensure that students continue to have access to the federal loans they need for college, it was designed to do so in large part by aiding banks and other lenders in the Family Federal Guaranteed Loan Program. (The Education Department’s plan for ensuring access to loans also includes assuring the stability of the government’s competing direct loan program, which has seen significant growth in recent months.)

And while financial aid officers and lenders have focused on help for students in arguing for the extension, an undercurrent of their advocacy is that guaranteed-loan providers need continued help, too. They and some of their supporters in Congress, such as Rep. Paul Kanjorski (D-Pa), have argued that too little has been done to help student loan providers find sources of financing for their loans, and that Congress may need to act to bolster the profitability of guaranteed loans to keep lenders in the program. On the flip side, some observers have derided the loan access law as a bailout for lenders, and may be inclined to view the need for an extension with skepticism.

Keeping banks and other lenders in the loan program is not the primary concern of Philip R. Day Jr., president of the National Association of Student Financial Aid Administrators. He is concerned about those high school seniors and their families who are beginning to think about how they’ll afford college in the fall of 2009, especially those who might be preparing right now to apply early to college.

“Knowing with some degree of certainty what is going to be available to make up the financial aid package, particularly for higher cost private colleges, becomes a critical piece of information and does impact on their decision-making/choices,” he wrote in an e-mail message. “These conversations are taking place around the country as we speak and they will be heating up considerably over the next several weeks.

“So the answer to your question is, absolutely yes, we support the extension. For us it isn’t about the lender’s comfort with the realities of whether the market is going to work for them or not, it is and has always been about giving our students, their parents, and our financial aid counselors a reasonable foundation of certainty upon which to base their discussions so that the student can be effectively served and know what their options are now rather than later.”

A letter from several lenders and groups of loan providers urging Congress to pass the one-year extension notes that since the passage of the student loan liquidity last in May, “the credit markets have continued to present tremendous challenges to our ability to attract affordable sources of capital to finance student lending.” Lenders engaged in intense negotiations in recent days with Congressional aides, hoping that lawmakers might agree to give lenders more help than was provided in HR 5715. Their motivation was driven in part by the continuing growth of the direct loan program, which has seen its share of all federal loan volume rise by 43 percent so far this year, according to statistics from the Education Department.

But when the conversations did not pan out, the lenders welcomed the straight-up one-year extension. “Many schools, students and families will begin the financial aid application process for next fall by January,” the lenders and groups — including the Consumer Bankers Association, the National Council for Higher Education Loan Programs, and Sallie Mae — wrote in their letter. “Extending [the loan liquidity law] will give them the stability and certainty they need as they make their decisions about financial aid for the 2009-2010 academic year.”

— Doug Lederman

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