Stabilizing the Student Loan Market

Legislation is set to move forward with a bail out of sorts for the student loan industry. Amidst controversy and scandal that erupted within the industry, along with financial aid officers at higher education institutions have left a bad impression on the students of tomorrow. The government has seen the withdrawal of multiple lenders from the federally funded loan game, and it plans to counteract this with the bill that will empower them to buy federal loans that lenders are unable to sell.

The lending industry generates their income and ability to create loans by selling debts to loan servicing companies. As the loan servicing companies become leery of the lending practices of these lenders, they are less likely to buy debts that are extended with the government backing.

The current availability of student loans that are federally funded has not been actually proven in jeopardy, however, financial experts agree that waiting until a serious problem is already occurring is not the way to handle the situation. The bill signed into law on May 7 is a temporary fix, allowing the assistance to be extended through the middle of the year 2009.

The subprime mortgage crisis has also had an effect on the college student loans market. Lenders are worried about the liquidity of the market, and are not as likely to extend as many loans as it has in the past.

This law that has been passed will allow the Education department to extend “emergency loans” to students directly, or to learning institutions that suffer a shortage of student loan availability. This would not be billed to the public taxpayers.

Controversy over this limited availability is rampant in the media, though. There are still an estimated 2,000 national lending institutions that will continue offering the federally subsidized loans. There has yet to be a report in the media of a student that qualified for federal funding, but was unable to secure it.

Despite the question of need, this law gives a huge boost to those families already in debt for student loans by allowing students to borrow larger sums of money, and parents that are paying student loans for their child a longer repayment period. It also ensures that parents who have been affected by the mortgage crisis to still qualify for federally funded college loans.

Experts still note that there are no clear signs of a limited availability of funding for federally subsidized loans. The real test will come this summer when the peak of funding disbursements occurs.

This entry was posted on Saturday, May 31st, 2008 at 4:15 pm and is filed under finance. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.