Congress Acts to Boost Student Lending

The House on Thursday backed a measure aimed at ensuring students get college loans amid the turmoil in the credit markets.

CNBC.com

Passage of the bill on a 383-27 vote comes as worries mount that the tightening credit markets, stemming from the subprime mortgage crisis, could limit financial aid for students.

"Families deserve every assurance that we are doing what we can to make sure that they will continue to be able to finance their children's college education, regardless of what happens in the credit markets," said Rep. George Miller, D-Calif., who chairs the House education committee.

Dozens of lenders, making up an estimated 13 percent of the market, recently stopped making loans under the federal student loan program, in which the government subsidizes and backs low-interest loans.

The departure of those lenders hasn't resulted in students being shut out of the program. Other lenders have stepped in, or the students have received the loans through a smaller program in which the Education Department makes the loans directly to students.

Some students relying on private loans, which are not federally backed and can carry high interest rates, have had trouble getting those non-federal loans.

The House bill seeks to address that problem by raising limits on how much borrowers can receive under the federal program.

The bill also tries to encourage parents to take out federal loans for their children's education. The bill would allow parents to defer repayment of those loans until after their children leave school, which is currently not allowed.

Home owners and people who are behind in medical bills also would get some relief under the legislation. It states that short-term delinquencies in mortgage or medical payments should not prevent otherwise eligible parents from borrowing money for college.

The legislation would give the Education Department authority to buy up loans from student lenders to ensure they have access to capital and can keep issuing loans.

Lenders, and some lawmakers, say more action is needed in this area. Some have urged Treasury Secretary Henry Paulson to consider using a Treasury financing agency to pump cash into the student loan market so lenders will make new federally backed loans.

The bill passed in the House Thursday is similar to legislation introduced in the Senate by Massachusetts Democrat Edward Kennedy, chair of the education committee in that chamber.

Students are just starting to line up financial aid packages for college this fall. Experts say the impact of the credit crunch on the student lending market probably won't be entirely clear until this summer.

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