Higher Ed Roundup: Week of April 7 – April 11

Student Aid Bill Approved by House Committee

Fed Chairman Rebuffs Calls from Pro-FFEL Lawmakers for Lender Bail Out

Settlement Doesn’t Stop Sallie’s Online Presence, Chronicle Investigation Finds

Student Aid Bill Approved by House Committee

The House of Representatives Committee on Education and Labor unanimously approved a bill on Wednesday designed to increase federal loan options for students and ease the effects of the credit crunch for lenders that participate in the Federal Family Education Loan (FFEL) program. The bill, which is similar to legislation introduced last week by Sen. Edward Kennedy (D-MA), would increase annual Stafford loan limits by $2,000 a year for undergraduates (bringing the aggregate totals to $31,000 for dependent students, and $57,500 for independent students); allow parents to defer payment of PLUS loans while their children are in school; and maintain eligibility for parents to PLUS loans even if they are delinquent on their mortgages. The bill also would allow the U.S. Department of Education to serve as “a secondary lender of last resort” to help provide liquidity to lenders that need new sources of capital to stay in business. Under the plan, the department would purchase outstanding FFEL loans from struggling lenders and service them through its Direct Loan program.

While many praised the legislation, the nation’s leading student advocacy groups have questioned a provision in the bill that would allow the Education Department to designate student loan guarantee agencies as the “lender of last resort” for entire colleges rather than for individual students, as is the currently the case. In a letter to Congress, the groups expressed concern that the provision would open the guaranteed loan program up to abuse by guarantors eager to expand their business and win greater federal subsidies, and schools that are eager to maintain the sweetheart deals the have had with lenders. The advocates called on lawmakers to alter the provision to prevent guarantee agencies from marketing “lender of last resort” loans, and require colleges to prove their students are unable to obtain FFEL loans without the designation.

Fed Chairman Rebuffs Calls from Pro-FFEL Lawmakers for Lender Bail Out

Late last week, Federal Reserve Chairman Ben Bernanke rejected calls from Rep. Paul Kanjorski (D-PA) and 31 other lawmakers to use the Fed to inject liquidity into the student loan market. In a letter to Kanjorski, Bernanke said that while he shared their “concerns about the difficulties in the student loan market,” the problems some lenders are facing do not rise to the level required for Fed action. “The Federal Reserve,” he wrote, “has extended credit to primary deals in recent weeks only after it reached a judgment that a failure to lend could well prompt a systemic crisis in the financial system that could threaten the health of the overall economy.” Undaunted, Kanjorski, who has long been a strong FFEL advocate, introduced a bill this week that would authorize the Federal Home Loan Banks to use surplus funds to invest in student loan securities, accept student loans and related securities as collateral, and provide secured advances to members so that they can originate student loans. The bill’s prospects are unclear.

Settlement Doesn’t Stop Sallie’s Online Presence, Chronicle Investigation Finds

An investigation by The Chronicle of Higher Education revealed this week that student loan giant Sallie Mae is continuing to act “as host to the entire online presence for the financial-aid offices” at three minority-serving colleges, despite the spirit of a settlement agreement it reached a year ago with New York Attorney General Andrew Cuomo. Under that settlement, Sallie Mae agreed to pay a $2 million fine and stop partnering with colleges to provide financial aid services to students. Despite that deal, the Chronicle found that Bennett College for Women, Bethune-Cookman University, and Wiley College were all continuing to use the company’s Campus Gateway software – a web-design tool that lets colleges “organize and present products for every phase of the college experience,” according to Sallie Mae’s Web site. None of the schools’ sites contain a warning about the lender affiliation, and the top loan choice available at Bennett is a private Sallie Mae loan. Not surprisingly, Sallie Mae held the vast majority of federal loan volume at the two schools that provided minimum additional lender options.