New Bill in Senate
Sen. Edward Kennedy (D-MA), chairperson of the Senate’s education committee, introduced the “Strengthening Student Aid for All Act” yesterday to prevent potential disruptions in federal student financial aid loans caused by volatility in the marketplace. His counterpart in the House, Rep. George Miller (D-CA), also released similar legislation yesterday, but with a few differences. The bills, which would make significant changes to Federal Student Financial Aid programs, comes the same week that the 11th and 12th largest student loan originators suspended FFELP participation.
Senate Bill
Kennedy’s bill would:
• Add $750 to the maximum Pell Grant awards for students with negative expected family contributions
• Annually Increase federal student financial aid loan limits by $1,000 for dependent students and $2,000 for independent students on unsubsidized Stafford loans
• Allow parent PLUS borrowers to receive deferments for children enrolled in college
• Require the Department to designate guaranty agencies as “lenders of last resort” on a college-wide basis rather than on a student-by-student basis
• Allow the Department to serve as a secondary market of last resort to purchase FFELP loans from lenders that need additional capital to continue making loans
This bill addresses all of the key elements NASFAA has advocated for in its testimony and communications with the House and Senate Committees, and letters to the Department of Education, including safety nets for the loan programs and enhancements to the Federal Pell Grant Program.
Kennedy acknowledged that the credit market crisis has made it more difficult for lenders to raise capital to make federal student financial aid loans. Punctuating his point were the announcements by Student Loan Xpress and NorthStar that they would be halting their participation in the federal student financial aid loan programs. Kennedy’s bill seeks to decrease reliance on private student loans while shoring up the federal loan programs.
The best way to help students and families afford college is to increase grant aid. More aid up front means fewer loans and less debt on graduation day.
Increasing federal student financial aid loan limits will also help keep students from borrowing private loans. Parents who relied on other forms of financing - such as home equity lines - are now turning to PLUS loans. The bill would provide some relief for these parents. The bill would also relieve borrowers from the burden of proving their eligibility for LLR loans.
This bill comes at the right time for the right students. This is a some what forward-thinking leadership in ensuring that students continue to have access to low cost federal student financial aid loans to fund their educations.
The FFELP situation has grown bleaker. The announcements by Student Loan Xpress and NorthStar brought the total number of lenders suspending FFELP loans to 42. These lenders originated more than $6.5 billion in FFELP loans in FY 2007. Lenders that have abandoned or suspended federal student financial aid loans provided roughly 13 percent of all FFELP originations in 2007.
Several lenders have also suspended FFELP secondary market operations, which many lenders use to raise capital to make loans. This represents an additional $2 billion in missing funds so far this year. Kennedy’s bill would alleviate some of the strain caused by these missing funds by allowing the Department to serve as a secondary market of last resort for loan providers.
It is too soon to know if the bill will have enough support in Congress to be passed or if the bill will provide enough support to prevent a loan access problem. Many expect a dramatic decrease in active FFELP providers by the time fall semester begins.
The lack and increasing cost of liquidity in the credit markets makes a widespread FFELP loan access problem possible and prompted the NASFAA’s Association Governance and Membership Committee to meet with Kennedy’s staff in March to suggest legislative solutions for a possible loan access problem. Kennedy’s bill is the biggest step that Congress has taken to ensure students’ access to federal student financial aid loans if capital markets do not correct themselves.
