The U.S. House of Representatives, acting with uncharacteristic haste, passed legislation intended as a safety net for the bank-based student loan system. The global credit crunch has resulted in significantly increased costs for loan companies that, unlike traditional banks, rely on capital markets for funding their loan portfolios.
A taxpayer-funded intervention is necessary, the bill's advocates say, because several lenders have dropped out or scaled back participation in the federally guaranteed lending program. While no student has yet been denied a loan, lenders and their allies have insisted that federal intervention would shore up markets badly in need of liquidity. Some critics, including AACRAO, have questioned the timing and the configuration of loan industry's preferred solutions, and have been concerned that lenders may be attempting to use Wall Street's credit woes as an excuse to discard bad loans and reverse the effects of subsidy cuts enacted just last year.
The House bill attempts to avert a possible disruption through several policy tools. It would:
Allow the Secretary to declare borrowers at an entire college in need of a “lender of last resort” should private financing become scarce;
Authorize the Secretary to purchase bank-based loans to provide liquidity for loan originators.
Incrase federal loan limits by $1,000 for dependent undergraduate borrowers and $2,000 for independent undergraduate borrowers. A similar provision for graduate students was scrapped in order to reduce costs and comply with the Democrats' “pay-as-you-go” principle.
Require the Government Accountability Office to study whether raising federal loan limits causes increased tuition;
Similar legislation has been introduced in the Senate, although it has yet to be taken up for consideration.
