One-third of the top 100 loan originators have dropped out of the federal student loan program. The House of Representatives is scheduled to vote on the Ensuring Continued Access to Student Loans Act of 2008 on April 17, which was unanimously approved by the House Education and Labor Committee on April 9.

Another bill was recently introduced by Rep. Paul Kanjorski (D-PA), chairman of the House Financial Services Subcommittee on Capital Markets, and Sen. John Kerry (D-MA), member of the Senate Finance Committee. If passed, the Emergency Student Loan Market Liquidity Act would help provide a, temporary source of liquidity for the student loan community, creating stability in the marketplace and ensuring students and families have access to the loans they need to pay for college.

The Emergency Student Loan Market Liquidity Act (H.R. 5723), recommends the use of the government's existing mechanisms, specifically the Federal Home Loan Banks, to provide funding on a temporary basis:

The bill would create a new section in the Federal Home Loan Bank Act providing for three emergency authorizations. The first permits each Federal Home Loan Bank to invest surplus funds not needed for advances to members in student loan-related securities. The second allows the Federal Home Loan Banks to accept student loans and student loan-related securities as collateral. The third authorizes each Federal Home Loan Bank to provide secured advances to its members to originate student loans or finance student loan-related securities.

The bill also stipulates that the emergency authorities provided are for a period beginning on February 1, 2008 and extending to the second-year anniversary of the date of enactment. Notwithstanding the expiration of the effective period, Federal Home Loan Banks may continue to hold outstanding investments in student loans and student loan-related securities until maturity. A similar exception is provided for existing collateral used to make advances to members before the termination date.

Sallie Mae and others in the higher education community agree that the most effective way to provide needed capital to lenders for student loan originations is to use the government’s existing mechanisms on a temporary basis. In response to the warnings made by Congress, the Administration must act without delay to work with Federal financial institutions, including the Federal Financing Bank, Federal Reserve and federally chartered private entities such as the Federal Home Loan Banks to provide liquidity to the capital markets serving federal student loan providers.

Sallie Mae commends Rep. Kanjorski and Sen. Kerry for their leadership on this issue and we hope Congress acts expeditiously to approve this bill, which would help ensure students and families avoid disruptions that could impact college enrollment for the upcoming academic year.

Additional information

Press release: Kanjorski introduces student loan liquidity legislation: Bill gives Federal Home Loan Banks emergency authority to provide student lenders with access to needed capital