It only took a week for the Bush Administration to turn down an idea proposed by Sen. Christopher Dodd (D-CT) to use the Federal Financing Bank (FFB) to inject liquidity into the student loan market. In a letter to Congressional leaders, Bush Administration officials said that after exploring the idea proposed by Dodd, they do not believe the FFB has the authority to purchase FFELP loans.
Last week, in a letter to Secretary of Treasury Henry Paulson, Dodd asked that he use the Treasury's existing authority to inject liquidity into the student loan market through the FFB.
"In our view, the utilization of the Federal Financing Bank as a source of liquidity seems the most immediate, most cost-effective, and most manageable proposal to provide liquidity for federally guaranteed loans in a way that is timely, temporary, and targeted," wrote Dodd.
The FFB is a government corporation, created by Congress in 1973 under the general supervision of the Secretary of the Treasury. The FFB was established to centralize and reduce the cost of federal borrowing, as well as the cost of federally-assisted borrowing from the public. The FFB has statutory authority to purchase any obligation issued, sold, or guaranteed by a federal agency to ensure that fully guaranteed obligations are financed efficiently.
The letter - sent by Paulson, Secretary of Education Margaret Spellings, and Director of the Office of Management and Budget Jim Nussle - does not explain why they believe the FFB cannot be used to inject liquidity into the FFELP market. It only states that "after a thorough analysis, it is clear that the FFB does not have the authority under the Federal Credit Reform Act to purchase, or otherwise participate in, loans to non-Federal borrowers in these circumstances."
The lack of explanation was not lost on Dodd, who found the one-sentence explanation in the letter "most troubling."
"This response is inconsistent with the views of industry experts who recently testified before the Committee and the legal opinion of others who have studied this matter," said Dodd in a press statement issued yesterday evening. "Instead of taking bold, decisive action to prevent today's concern from turning into tomorrow's crisis, the Administration instead has done less than it could, and should, do to ensure that every student has options to finance a higher education."
Administration Puts Responsibility Back On Congress
While rejecting the idea of using the FFB, Administration officials did signal support for H.R. 5715, particularly for a provision that would allow the Department of Education to purchase FFEL loans as a secondary market. H.R. 5715 passed by a wide margin in the House last week, but so far the Senate has yet to take up its companion bill S. 2815. Administration officials appear anxious to get the bill moving through the Senate.
"Implementing this authority will take time so it is imperative to move this legislation without delay if this authority is to be used in the upcoming school year," said the letter.
White House Press Secretary Dana Perino echoed the letter's sentiment yesterday afternoon. During a White House press briefing Perino urged "prompt action" from Congress on giving the Secretary of Education authority to purchase FFELP loans. "We do not want to see any students unable to attend universities this year because of the credit crunch, and that's why we are taking appropriate steps now to confront that challenge should it arise," she said.
NASFAA President Dr. Phil Day said he welcomed White House concern and support for student borrowers, but was surprised that the Bush Administration rejected the use of the FFB.
"Access to the FFB is very much an ‘appropriate' action and is an effective tool to provide market liquidity," said Day. "We need all available tools, even if we never use them, to ensure federal student loan borrowers have uninterrupted access to the credit they need to finance their postsecondary education.
"I urge the Congress to continue action on H.R. 5715, which would address many of the liquidity issues that could potentially disrupt students’ access to federal loans," continued Day. "But most importantly we need Congress to provide the necessary leadership to come up with a comprehensive solution to address current market conditions."
Sen. Edward Kennedy (D-MA), author of S. 2815, stressed the importance of moving pending legislation along swiftly.
"I welcome the Administration's support for prompt Senate action on our legislation to prevent the crisis in the credit markets from becoming a crisis for students and families already struggling to pay for college," said Kennedy in a statement released yesterday. "Obviously, we can't allow access to college and the American Dream to depend on quarterly earnings of the nation's banks."
Administration officials also pointed to the steps they have already taken to help ensure no disruptions in federal student loans this year, including finalizing lender of last resort (LLR) plans from all thirty-five guaranty agencies, releasing details on funding advances from the federal government, and ensuring that the Direct Loan program has the capacity to absorb additional loan volume.
Additional Resources and Media Coverage
By Justin Draeger
NASFAA Assistant Director for Communications
Posted 04/24/08 to www.NASFAA.org. Redistribution to non-NASFAA institutions is prohibited. Please submit Web Site questions or comments to Web@NASFAA.org.
