Sen. Edward Kennedy (D-MA), chairman of the Senate's education committee, introduced the Strengthening Student Aid for All Act of 2008 today to prevent potential disruptions in federal student loans caused by volatility in the marketplace.

The bill, which would make significant changes to Federal Student Aid programs comes the same week that the 11th and 12th largest student loan originators suspended FFELP participation.

Kennedy's bill would:

• Add $750 to the maximum Pell Grant awards for students with negative expected family contributions

• Annually Increase federal student loan limits by $1,000 for dependent students and $2,000 for independent students

• Allow parent PLUS borrowers to receive deferments for children enrolled in college

• Require the Department to designate guaranty agencies as "lenders of last resort" on a college-wide basis rather than on a student-by-student basis

• Allow the Department to serve as a secondary market of last resort to purchase FFELP loans from lenders that need additional capital to continue making loans

"This bill addresses all of the key elements NASFAA has advocated for in its testimony and communications with the House and Senate Committees, and letters to the Department of Education, including safety nets for the loan programs and enhancements to the Federal Pell Grant Program," NASFAA President and CEO Dr. Philip Day said.

Kennedy acknowledged that the credit market crisis has made it more difficult for lenders to raise capital to make student loans. Punctuating his point were the announcements by Student Loan Xpress and NorthStar that they would be halting their participation in the federal student loan programs. Kennedy's bill seeks to decrease reliance on private student loans while shoring up the federal loan programs.

"The best way to help students and families afford college is to increase grant aid," Kennedy said. "More aid up front means fewer loans and less debt on graduation day."

Increasing federal loan limits will also help keep students from borrowing private loans. Parents who relied on other forms of financing - such as home equity lines - are now turning to PLUS loans, according to Kennedy. The bill would provide some relief for these parents. The bill would also relieve borrowers from the burden of proving their eligibility for LLR loans.

"This bill comes at the right time for the right students," Day said. "I thank the chairman for his forward-thinking leadership in ensuring that students continue to have access to low cost federal student loans to fund their educations."

The FFELP situation has grown bleaker. The announcements by Student Loan Xpress and NorthStar brought the total number of lenders suspending FFELP loans to 42. These lenders originated more than $6.5 billion in FFELP loans in FY 2007. Lenders that have abandoned or suspended federal loans provided roughly 13 percent of all FFELP originations in 2007.

Several lenders have also suspended FFELP secondary market operations, which many lenders use to raise capital to make loans. This represents an additional $2 billion in missing funds so far this year. Kennedy's bill would alleviate some of the strain caused by these missing funds by allowing the Department to serve as a secondary market of last resort for loan providers.

It is too soon to know if the bill will have enough support in Congress to be passed or if the bill will provide enough support to prevent a loan access problem. Many expect a dramatic decrease in active FFELP providers by the time fall semester begins.

The lack and increasing cost of liquidity in the credit markets makes a wide-spread FFELP loan access problem possible and prompted Day and NASFAA's Association Governance and Membership Committee to meet with Kennedy's staff in March to suggest legislative solutions for a possible loan access problem. Kennedy's bill is the biggest step that Congress has taken to ensure students' access to federal loans if capital markets don't correct themselves.

"I am delighted that we were able to work with Chairman Kennedy on aspects of this bill and look forward to our continued partnership in expanding students' access to postsecondary education," Day said.

By Justin Draeger
NASFAA Assistant Director of Communications TAG WITH COPYRIGHT

Posted 04/03/08 to www.NASFAA.org. Redistribution to non-NASFAA institutions is prohibited. Please submit Web Site questions or comments to Web@NASFAA.org.