Congressman Paul E. Kanjorski (D-PA), the chairman of the House Financial Services Capital Markets, Insurance, and Government Sponsored Enterprises Subcommittee, introduced emergency legislation yesterday to provide liquidity in the student loan marketplace.

The Emergency Student Loan Market Liquidity Act (H.R. 5723) would give federal home loan Banks emergency authority to provide student lenders access to capital.

"The student loan market currently faces severe liquidity problems and cannot access capital. The Federal Home Loan Banks can help provide such access," said Kanjorski. "More and more student loan originators are also suspending or halting participation in the Federal Family Education Loan Program. Because the Federal Reserve, the Treasury Department and the Education Department have failed to appreciate the gravity of the situation, I am taking action now in Congress by introducing the Emergency Student Loan Market Liquidity Act to help that ensure that the anticipated nearly 7 million borrowers will have access to their student loans in the next school year."

Nonbank student loan providers have been hit hard by the student loan crunch because they do not have other sources of funding like traditional banks that can borrow directly from the Federal Reserve. Kanjorski's bill tries to fix that by introducing three emergency authorizations that will last for two years from enactment. According to Kanjorski's press release, his bill would:

• Enable Federal Home Loan Banks to invest in student loan-related securities with their surplus funds.

• Allow the Federal Home Loan Banks to accept student loans and student-loan related securities as collateral.

• Permit the Federal Home Loan Banks to provide secured advances to its members to originate student loans or finance student loan-related securities.

"The addition of this temporary power is closely in line with the existing mission of the Federal Home Loan Banks to support community and economic development," said Kanjorski.

Kanjorski has spearheaded several letters to other members of Congress, Federal Reserve Chairman Ben Bernanke, Secretary of Education Margaret Spellings, and Secretary of Treasury Henry Paulson in recent weeks expressing concern about the worsening condition of the student loan marketplace. A response by Bernanke explaining why the Federal Reserve could not inject liquidity into the student loan markets prompted this legislation, according to the press release.

Kanjorski claims that the Bush Administration has "failed to recognize the urgency of the student loan market situation."

By Justin Draeger
NASFAA Assistant Director for Communications

Posted 04/09/08 to www.NASFAA.org. Redistribution to non-NASFAA institutions is prohibited. Please submit Web Site questions or comments to Web@NASFAA.org.