April 4, 2008
For months, there have been regular and frequent warnings on Capitol Hill about the need to address problems in the credit markets impacting student loans. The upcoming academic year brings with it many uncertainties, as a growing list of lenders stop making federal and private loans. To date, 21 of the top 100 lenders have dropped out of the federal student loan program. Numerous bipartisan letters have been sent by members of Congress to Secretary of Education Margaret Spellings, Secretary of Treasury Henry Paulson and Federal Reserve Chairman Benjamin Bernanke calling for immediate action. Hearings have been held, legislation was recently introduced by Sen. Ted Kennedy (D-MA) and Rep. George Miller (D-CA) and additional legislative solutions are under consideration.
Sallie Mae’s strongly held view, which we share with other lenders and stakeholders, is that the most effective way to address the severe constraints on access to new capital to make student loans is to use the government’s existing mechanisms to provide funding to lenders on a temporary basis. For example, the Federal Financing Bank (FFB) could be used to guarantee access to needed capital, help restore confidence in the capital markets and prevent any chance for disruptions on campus during the upcoming academic year. The Lender of Last Resort (LLR) program is not designed for use on a broad scale and will not be easy to implement on campus. Likewise, proposals that rely on the Direct Loan program as the primary solution should not be prioritized over other solutions that would inject liquidity into the student loan financing market.
NASFAA President Philip Day led the financial aid community in encouraging quick action by the government, when he wrote the following in a letter to key congressional leaders: “Increasing liquidity in the student loan market would be the easiest and surest way to ensure students continue to have guaranteed access to federal loans. And it would reestablish a sense of confidence in the marketplace when it is most needed.”
Sallie Mae commends NASFAA for its leadership. We also commend Rep. Paul Kanjorski (D-PA) for working hard to study the best options available to the government and prompting broad, bipartisan support for addressing the problem before it impacts students.
Sallie Mae is ready to do its part to ensure the needs of new and continuing students are prioritized.
It's critical that Congress and Secretary Spellings hear directly from individual schools. Schools are in the best position to explain how disruptions on campus can lead students to delay enrollment, or worse, not enroll at all. Working together we can ensure students and their families are guaranteed access to the funding they need during the upcoming academic year and beyond.
For more information, see these letters: