House and Senate Pass Bill to Ease Credit Crunch
May 1, 2008
Acting with uncharacteristic speed, Congress is moving quickly to head off growing concern about the availability of student loans. A bill to address the issue and provide additional authority to allow the Secretary of Education to proceed with contingency plans passed the House with a 383 to 27 margin on April 17. The Senate unanimously passed the House bill, with several amendments, on April 30. The final step before the bill goes to the President for signature is for the House to agree to the version with the Senate amendments. This action is on the House calendar for May 1.
President Bush supports the legislation. He used his weekly radio address on April 26 to urge Congress to act expeditiously, saying, "A delay of even a week or two may make it impossible for this legislation to help students going to school this fall." NACUBO joined other higher education associations this week in a letter encouraging the Senate to move forward on the measure.
The Ensuring Continued Access to Student Loans Act of 2008 (HR 5715), would provide the Secretary of Education with authority needed to allow the Department of Education (ED) to step in and backstop, or provide a safety net, for the bank-based Federal Family Education Loan (FFEL) program. Existing lender-of-last-resort rules allow guaranty agencies to provide loans to would-be borrowers who have trouble finding a willing lender. This authority is based on case-by-case determinations, which would quickly become unworkable if there is a widespread contraction in loan availability. HR 5715 would clarify existing law giving the Secretary of Education authority to advance federal funds to guaranty agencies operating as lenders of last resort if necessary, without specific appropriations.
The bill would also allow guaranty agencies to carry out these functions on an institution-wide basis. In order for its students to qualify as eligible for lender-of-last-resort loans, an institution would need to demonstrate that:
- Despite due diligence on the part of the institution, it has been unable to "secure the commitment of lenders willing to make loans to a significant number of students attending the institution;"
- The number or percentage of students at the institution who have received rejections from eligible lenders for FFEL loans has met a minimum threshold set by ED; and,
- Any other standards set by ED have been met.
Under a Senate amendment, guaranty agencies making loans under the lender-of-last-resort provisions would not be allowed to offer better terms than those specified in the Higher Education Act, in order to avoid competing unfairly with traditional lenders. The Senate would also sunset these provisions on June 30, 2009. ED would furthermore be given authority to purchase loans from lenders if it was determined to be necessary to meet the demand for loans. Such purchases would need to be structured so that the government incurs no cost.
The bill would take several additional steps to ensure the availability of student loans and keep costs down for borrowers:
- Annual loan limits for unsubsidized federal student loans would be increased by $2,000, with the aggregate loan limits increased from $23,000 to $31,000 for dependent undergraduates, and from $46,000 to $57,500 for independent undergraduates. This would lessen reliance on more expensive private loans.
- Parent borrowers would be given more time to begin repaying PLUS loans. Currently, repayment must by sixty days after disbursement. This would be extended to provide the option of waiting until six months after their children leave school to begin repayment.
- In order to make it easier for parents caught in the mortgage crisis, delinquencies on home mortgages would be temporarily classified as an extenuating circumstance, allowing those parents to qualify for a PLUS loan. The Senate bill also gives the same status to delinquencies on medical bills of fewer than 180 days.
The Senate bill also increased grant aid to some students by making a number of changes to the Academic Competitiveness Grant program, including providing eligibility for students in a fifth year of undergraduate work.
A version of the bill combining both the House and Senate versions is not yet available online.
The most recent version of the bills can be found at www.thomas.gov, a site maintained by the Library of Congress.
An earlier briefing paper provided background information on the student loan credit crunch.
NACUBO Contact: Anne Gross, vice president, regulatory affairs, 202.861.2544
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