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Written by: Cody Brumfield
Published: 04/09/2008 Bill Introduced to Limit Effect of Potential Student Loan Credit Crunch
Sen. Edward Kennedy, chairman of the Senate Health, Education, Labor, and Pensions committee, has introduced legislation designed to address the growing concerns of colleges and borrowers that the recent tightening of credit markets could spill over into the student lending sector. According to the Chronicle of Higher Education, Rep. George Miller, Sen. Kennedy's counterpart in the House, will introduce similar legislation in the coming days. If enacted, Sen. Kennedy's bill would: - Increase the maximum Pell Grant by $750;
- Increase federal loan limits by $1,000 for dependent undergraduate borrowers and $2,000 for independent undergraduate borrowers. Dependent borrowers who cannot obtain for PLUS loans due to their family's poor credit would be eligible for the $2,000 loan limit increase;
- Allow parents to defer interest on PLUS loans while their children are in college;
- Authorize the Department of Education to act as a lender of last resort for an entire college instead of on a student-by-student basis;
- Authorize the Department of Education to purchase federal loans from lenders in need of a capital infusion;
Rep. Miller's legislation is broadly similar, however, his proposal would increase loan limits to $2,000 for all student borrowers and leave the maximum Pell Grant at the current level. Several lenders have dropped out or scaled back participation in the federally guaranteed lending program due to decreased liquidity in the asset-backed securities markets. While no student has yet been denied a loan, the loan industry and its allies claim that federal intervention is needed to avert an impending crisis. Critics object, however, that the industry is attempting to use Wall Street's woes to reverse the cuts to its subsidies enacted last year. "The loan industry and its allies are hoping to scare Congress into restoring their windfall profits," said Barmak Nassirian, Associate Executive Director of AACRAO.
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