More than 30 members of the U.S. House of Representatives from both sides of the aisle signed a letter urging Federal Reserve Chairman Ben Bernanke to use emergency authority to provide access to the Federal Reserve for student loan originators issuing highly rated securities backed by student loans. The letter also asks the Federal Reserve to allow originators to use student loan asset-backed securities as collateral at the securities lending facility that the Federal Reserve announced last week.
NASFAA President and CEO Dr. Philip Day applauded the lawmakers' efforts.
The lack of liquidity in the student loan capital markets threatens countless programs provided by many student lenders that directly and indirectly benefit some of our nation's most deserving students," Day said. "Action by the Federal Reserve would ensure students have seamless access to student loans and the benefits that these lenders provide."
These programs include, but are not limited to, financial literacy, college planning, career planning, outreach, debt management programs, and teacher and military loan forgiveness programs.
However, Day noted that action by the Federal Reserve would only provide a temporary solution to a larger problem. He urged lawmakers and the Bush administration to make a significant investment in existing, need-based financial aid programs like the Pell Grant to ease the growing dependence on student loans.
In its effort to shore up the capital markets, the Federal Reserve has created new lending programs for banks and primary dealers in the bond markets, provided financing of up to $30 billion for an unprecedented bailout of Bear Stearns Cos. at the rock bottom price of $2 a share, and provided $200 billion in Treasury bonds to purchase mortgage-backed securities.
"The recommendation by lawmakers in the House represent another important step the Federal Reserve can take to stabilize a vital sector of the capital markets," Day said.
The letter was signed by 32 lawmakers including Paul Kanjorski (D-PA), chairman of the House Financial Services Capital Markets, Insurance, and Government Sponsored Enterprises Subcommittee, Howard "Buck" McKeon (R-CA) the senior Republican on the House Education and Labor Committee, and Rubén Hinojosa (D-TX) chairman of the Education and Labor Subcommittee on Higher Education, Lifelong Learning and Competitiveness.
"The increasing volatility in the financial markets could disrupt access for the estimated 6.7 million students and families expected to apply for Federal Family Education Loan Program loans in the coming months. I strongly urge Chairman Bernanke to act," Chairman Kanjorski said in a press release.
The letter notes that providing liquidity to the student loan markets will have wide-spread benefits.
"We believe that the Federal Reserve System should work to provide liquidity to all types of student loan originators in order to restore a smooth functioning of this market sector and to avoid negative economic outcomes," the letter states. "If students - 80 percent of whom rely on the Federal Family Education Loan Program - are unable to secure loans in the fall, we would not only severely impair their long-term earnings capacity, but we would also impair our national economic prospects."
Additional Media Coverage
By Haley Chitty
NASFAA Assistant Director of Communications
Posted 03/19/08 to www.NASFAA.org. Redistribution to non-NASFAA institutions is prohibited. Please submit Web Site questions or comments to Web@NASFAA.org.
