- The Washington Times - Wednesday, April 16, 2008

ASSOCIATED PRESS

Key senators assured Sallie Mae, investors and college administrators yesterday that the government will help revive the distressed market for securities made from student loans.

The student lending industry and investors are pressing Congress for help, and Democratic leaders say a potential crisis in access to money for education should be averted by government action in the way that the mortgage foreclosure disaster was not.

“It is our obligation not to let a single person go” without being able to secure an education loan, Sen. Charles E. Schumer, New York Democrat, declared at a hearing by the Senate banking committee.

It would be “unpardonable to let what happened in housing” occur with regard to student loans, he said.

Mr. Schumer, an influential lawmaker, is often attuned to the concerns of Wall Street. Sallie Mae, formally SLM Corp., and the big financial institutions that bundle mortgages and student loans into securities and trade them wield hefty lobbying clout on Capitol Hill. They are urgently asking the government to step in to provide relief.

It is not clear exactly what form the aid will take, and several proposals are being advanced in the Senate and House. There is clearly a bipartisan push in favor of government action in what is becoming a high-profile issue in an election year.

Sen. Christopher J. Dodd, Connecticut Democrat and the committee’s chairman, said he would ask Treasury Secretary Henry M. Paulson Jr. to consider using a Treasury financing agency to pump cash into the student loan market so lenders will make new federally backed loans.

Legislation in the House and Senate would give the Education Department temporary authority to buy up loans from student lenders to ensure their access to capital.

It is now the cusp of the period in which students headed to college next year must lock in their loans. Distress in the $330 billion market for auction-rate securities in recent months — itself an offshoot of the subprime mortgage crisis — has caused more than 50 student lenders to stop making federally guaranteed student loans, either temporarily or permanently.

The exiting lenders, which include college loan agencies in several states, account for around 13 percent of the federally backed student loan market, according to FinAid.org.

Without government help to get money pumped into the stricken market, “We’re looking at a material shortfall in access to student loans this year,” Sallie Mae’s chief financial officer, John Remondi, testified at the hearing. Sallie Mae is the nation’s largest student lender.

The major federal student loan program provides $50 billion in loans to 6.4 million students each academic year. Rates on federally guaranteed loans are capped at 6.8 percent, while rates for private loans are as high as 20 percent.

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