The U.S. Senate passed a bill on Wednesday that seeks to avert a shortfall in student loans, a day after President Bush urged Congress to act quickly on the legislation.
The bill, HR 5715, which the House of Representatives passed in mid-April, seeks to stem the departure of loan companies from the federally guaranteed student-loan program and reassure families that student loans will be available in the fall. More than 50 lenders have left the federal program in recent weeks, amid a credit crunch that has spread from the housing market to the student-loan industry.
To encourage lenders to remain in the federal program, the bill would allow the secretary of education to buy up loans that lenders have struggled to sell to investors. It would also clarify that the Education Department has the authority to advance federal funds to guarantee agencies so those agencies could make loans, if necessary, under a “lender of last resort” system.
The bill would also ease the process of applying for a student loan under such a system, allowing the secretary to designate emergency lenders of last resort on a collegewide basis, rather than student by student.
A Sense of Urgency
Passage of the bill came a day after President Bush used a news conference to call on the Senate to act “very quickly” and four days after he devoted his weekly radio address to the topic of student loans.
“A delay of even a week or two may make it impossible for this legislation to help students going to school this fall,” Mr. Bush warned in his radio address.
The Bush administration has been pushing for Congressional action since concluding this month, after weeks of discussions, that it lacked the legal authority to bail out student-loan companies on its own.
So far, it does not appear that the exodus of lenders from the federal program has led to a shortage of student loans. But lobbyists representing for-profit colleges, where students enroll continuously rather than on the traditional semester schedule, say they are starting to see problems. Some lobbyists for nonprofit colleges fear that their students may face similar shortfalls as the traditional lending season picks up this spring.
In a floor speech before the bill’s passage, its sponsor, Sen. Edward M. Kennedy, said lawmakers could not “afford to wait for a full-blown crisis” to act.
“We need to get these safety nets in place now, before we’re hit with a problem that’s beyond our control,” said Mr. Kennedy, Democrat of Massachusetts.
Clarification on Conflicts
Before passing the bill, the Senate adopted a package of amendments designed to prevent guarantee agencies and other lenders of last resort from abusing their newfound authority. The changes would clarify that lenders of last resort are bound by the same conflict-of-interest rules as traditional lenders and prohibit them from offering discounts that traditional lenders cannot match. The amendments also clarified that the secretary’s authority to buy up loans and designate lenders of last resort on an institutionwide basis would be temporary, expiring at the end of the 2008-9 academic year.
The Senate also did away with a proposed Pell Grant increase, opting to expand the Academic Competitiveness Grant and Smart Grant programs instead. Under the revised bill, part-time students and students in their fifth year of a certified five-year program would become eligible to receive the grants.
The Senate also agreed to raise the limit on federal loans by $2,000 for undergraduate students only, as the House had proposed. The Senate’s original bill would have increased loan limits by $1,000 a year for undergraduates who are dependents and $2,000 a year for independent undergraduates.
Lawmakers did not directly deal with concerns that lenders could use the lender-of-last-resort program to dump unprofitable loans on the federal government. But a Senate aide said that such a scenario was unlikely, given that the secretary of education would have the authority to set the price on loans the department buys and could refuse to purchase certain loans.
The House is expected to vote on the amended bill today and then send it quickly to the president’s desk for a signature.