04.29.08
Student Loan Bailout Bills Rife with Fiscal Pitfalls
This post comes from Martha Sherwood, 2nd time GovTrack blog submitter and a legal researcher in a consumer law office. Martha works for a lawyer who blogs at Bankruptcy Law Network. Martha holds a doctorate in biology.
There are currently four bills pending in Congress to address the credit crunch in the Student loan industry. All of them were introduced in the last month in response to an acute situation that has only become apparent since the beginning of the year: lenders participating in the Federal Guaranteed student loan program do not have the money to loan to students, and as a result, more than fifty of them, including some major players, have withdrawn from it altogether, and most of the remainder have warned the government that they anticipate not being able to originate such loans at the level of previous years, because they cannot find buyers for securitized student loan bundles. The situation is very similar to what has been happening in the mortgage lending market in the last year and a half, but it is considerably more acute. Unless students planning to attend college in the fall can obtain loans, colleges will be without operating expenses, and many will be forced to shut their doors. This explains why the Democrats who have been most vociferous in opposing any government bailout to subprime mortgage lenders appear as sponsors for a set of bills providing equally unwise government sponsorship for student loan lenders and guarantee agencies.