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Financial Planning > College Planning > Student Loan Debt

Credit Crunch Concerns

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The Bush administration has asked that Congress permit it to buy billions of dollars in federal student loans, endorsing a provision in a bill passed by the House this month. On April 17, the U.S. House of Representatives approved bipartisan legislation to make sure the nation’s credit crunch does not block borrowing for higher education. Passed by a vote of 383-27, The Ensuring Continued Access to Student Loans Act of 2008 (H.R. 5715) would provide new protections, in addition to those already under current law, to “ensure that families continue to have timely, uninterrupted access to federal college loans in the event that stress in the credit markets leads a significant number of lenders in the federally guaranteed student loan programs to substantially reduce their lending activity.” The bill authorizes the buying back of federally guaranteed student loans through July 2009; a similar bill has just been introduced in the Senate.

The Education Department reports that 43 lending institutions have withdrawn from the federal student loan program and that some remaining banks are pickier about the loans they make. By buying loans, the government would provide capital to lenders to make new loans. In an interview, Education Secretary Margaret Spellings told The New York Times that the administration wants to provide a backup for commercial lenders to ensure the credit crisis does not keep students from borrowing. “I want to make double-dog sure that we have the tools necessary,” Spellings said.

The administration has not proposed buying private student loans, which families often used to fill the gap between financial aid and the full cost of tuition. Last year students and their families borrowed more than $17 billion in private loans, according to the College Board; they borrowed nearly $60 billion in federal loans.


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