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Written by: Cody Brumfield
Published: 05/07/2008 President Bush Signs Student Loan Market Stabilization Bill
According to the Reuters News Service, President Bush signed legislation into law this week that would provide a safety net for the bank-based student loan system and expand eligibility for Academic Competitiveness and SMART Grant aid. The legislation's swift passage – it was introduced only last month – reflected Congressional fears that student borrowers would lose access to capital during the fall of an election year. Although no student has yet been denied credit, the global credit crunch has resulted in significantly increased costs for loan companies. Unlike traditional banks, most student lenders rely on capital markets for funding their loan portfolios and the collapse of the asset-backed securities markets led several lenders to suspend participation in federal student loan programs. Upon consideration by the Senate, several amendments were passed directing any cost savings into expanding the Academic Competitiveness Grant and SMART Grant programs. The final legislation will contains the following provisions: - Allows the Secretary to declare borrowers at an entire college in need of a “lender of last resort” should private financing become scarce;
- Authorizes the Secretary to purchase bank-based loans to provide liquidity for loan originators;
- Increases federal loan limits by $1,000 for dependent undergraduate borrowers and $2,000 for independent undergraduate borrowers. A similar provision for graduate students was scrapped in order to reduce costs and comply with the Democrats' “pay-as-you-go” principle.
- Requires the Government Accountability Office to study whether raising federal loan limits causes increased tuition;
- Adds a fifth year to SMART Grant eligibility for certain programs and allows students attending less than full time to receive pro-rated grants;
- Extends eligibility for ACG/SMART to legal permanent U.S. residents;
- Extends eligibility to students in independent study programs at colleges offering no eligible programs of study;
- Limits the Department of Education's reach in defining “rigorous” secondary school program.
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