May 1, 2008

Student Lending Bill Passes in Congress

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In an effort to avert a potential student-lending crisis, the House of Representatives passed the HR 5715 bill on April 17, to guarantee students and their parents continued access to federal student loan programs.
According to The Chronicle of Higher Education, “More than 50 lenders have left [the] program in recent weeks, amid a credit crunch that has rippled across the financial sector, making many types of lending less profitable.”
The bill seeks to persuade lenders to remain part of the program and to guarantee students that they will receive the loans they need. It grants permission for the secretary of education to purchase direct loans from lenders — as long as they do not result in net cost to the federal government — as well as provide a $2,000 increase in the loan amounts offered to undergraduates.
“The bill is also an attempt to reassure students that the federal government will step in if private lenders continue to drop out of the system … the bill would clarify that the Education Department has the authority to advance federal funds to guarantee agencies, which would make student loans if they became widely unavailable from traditional lenders,” reported The Chronicle.
Thomas Keane, director of financial aid and student employment, explained that the bill would provide students with “some measure of confidence” that they will be able to receive the loans they need to go to college. He also added that, despite the potential lending crisis, Cornell students need not worry.
“Cornell participates in the direct loan version of the program, so our students are not in danger of losing their lender,” he said.
The increase in the amount undergraduates can borrow will help to reduce students’ dependence on more expensive private loans, The Chronicle explained. The potential crisis has affected these as well, as “more than a dozen lenders have recently announced plans to quit making private student loans, including Bank of America. Others have stopped lending to students with poor credit scores or those attending colleges with low graduation rates.”
A version of the bill has been introduced to the Senate but has yet to be voted on.