The credit crunch and cash-strapped Wall Street is driving lenders out of the federally backed student loan business in droves just as loan applications are piling up from students heading to college this fall semester.
Student loan-backed securities make up about $80 billion of the $330 billion auction-rate securities market. The collapse of that market this year has had rippling effects in the student loan market.
There have been calls for the government to act and protect access to education and Congress is concerned.
According to the Education Department and education experts, so far, no student has been unable to get a loan because with over 2,000 lenders participating in the Federal Family Education Loan Program, there have been lenders ready to step in when certain lenders stopped making loans.
Not satisfied, lawmakers pressed for a contingency plan and they got it. Education Secretary Margaret Spellings says she is providing a safety net in the event the government’s help is needed. Kennedy's bill would allow the Education Department to use government funds to finance student loans.
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