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Student-loan legislation moves forward

The bill, designed to encourage lenders to keep offering federal loans to students, won bipartisan support in Congress.

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Before the Senate vote, Sen. Edward Kennedy (D) of Massachusetts noted one reason lawmakers tried to move quickly: Nearly 50 lenders representing 14 percent of the federal student-loan market have dropped out of the federal loan program during the recent credit turmoil. "We can't afford to wait for a full-blown crisis before we act," his statement said.

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The bill also clarifies rules for the Education Department's "lender of last resort" program. If the 35 designated guaranty agencies can't get capital from lenders, Secretary Spellings could advance them money to make loans. And to make it more convenient for students, she could temporarily make an entire school eligible for such loans in cases where many students are having trouble finding lenders. That way, students at those schools would not have the burden of proving individual eligibility.

These loans would be subject to the same terms and ethics rules as other loans in the Federal Family Education Loan Program (FFELP).

Borrowers would still get their bills from the same servicing companies, even if the loans change hands, Senate aides say.

"What Congress is doing is putting more tools in the secretary of Education's toolbox," says Mr. Hartle of ACE. "We hope that they're not needed, but if they are it will be good that [she] has the legal authority."

For students and parents struggling in this tight economy, a number of other measures in the bill provide relief:

•The limits on federal unsubsidized loans – available regardless of income level – would increase by $2,000 per year. Undergraduates, for instance, would now be able to borrow up to $31,000 over the course of their education (up to $57,500 if they are not dependent on parents).

•Parents who take out a low-cost federal PLUS loan to pay college bills would now have up to six months after their child finishes school to start paying it back. Previously, they had to start repayment just 60 days after receiving the loan.

•Parents who are up to 180 days late on mortgage payments would no longer be disqualified from receiving PLUS loans.

Congressional aides say the improved terms should attract more families to these loans, which in turn should generate up to $450 million for the government over the next five years. This bill would channel that money into grants for low-income students majoring in high-demand fields such as math and engineering. According to Senator Kennedy's statement, 100,000 more students would be able to receive these grants. Notably, part-time students could now participate, which would make a difference particularly at community colleges.

'Not the complete solution'

Like other groups that have been watching the loan situation closely, the National Association of Student Financial Aid Administrators praises the bill. But "it's not the complete solution," says NASFAA President and CEO Phil Day.

Nearly one-quarter of college borrowing has recently occurred in the private sector. Even though more loans would now be available on the federal side, some families will probably still face a gap and seek private loans in an unpredictable market, Mr. Day says. "We're urging parents and students to continue to work closely with their [college's] financial-aid people. They know who is out there giving private loans and how good or bad a job they do," he says.

But for the vast majority of families going through the financial-aid process this spring and summer, Day says, this bill "will help facilitate things immensely."