Proposed Legislation Would Prevent Student Loan Lenders from ‘Cherry-Picking’ Schools They Lend To

Student Loan Girl — Fri, 20 Jun 2008 01:14:00 GMT

To ensure all students have access to student loans regardless of what type of school they attend, two Democratic senators introduced legislation Tuesday that would prohibit banks and other lenders from “picking and choosing” which institutions of higher education they do business with, according to a New York Times article (“Bill Promotes Universal College Loans,” June 18, 2008).

Under the proposal, lenders that participate in the Federal Family Education Loan Program would have to extend credit to any eligible student, regardless of a student’s income or the type of institution they attend, as long as the student’s college is a member of the FFEL program, writes Times reporter Jonathan Glater.

Senators Patty Murray, D-Wash., and Christopher Dodd, D-Conn., introduced the legislation in response to the decision of Citibank, JPMorgan Chase, PNC, and SunTrust to stop offering student loans to community colleges and other two-year institutions.

“Lenders offering loans backed by taxpayer dollars shouldn’t be able to discriminate against certain schools or students,” Murray said in a statement. “Denying loans based on school, program length, or income level locks the door for far too many.”

Bill Faces an Uncertain Future

Banks who have ceased lending to certain two-year institutions contend that they lose money on the loans. Schools that have been cut off by the banks tend to have higher default rates and fewer borrowers with small loan amounts — financial factors that, lenders say, make business at these schools less profitable.

But financial aid administrators counter that lenders should not be allowed to “cherry-pick,” because selective lending could make it harder for low-income students to pay for college.

The proposal, which is under review by the U.S. Department of Education, has already been met with controversy. Some financial aid officials support the measure as way of ensuring access to student loans, while others believe it might have the unintended consequence of pushing lenders out of the federal student-loan business altogether at time when over 100 lenders have already left the FFEL program.

While the bill’s prospects are unclear, Sen. Edward Kennedy, D-Mass., chairman of the Senate Committee on Health, Education, Labor, and Pensions, is expected to co-sponsor the bill.

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Senator Calls on Fed, Treasury to Ensure Families Can Get Student Loans

Student Loan Girl — Thu, 17 Apr 2008 18:16:00 GMT

Senate Banking, Housing and Urban Affairs Committee Chairman Christopher Dodd, D-Conn., called on the Treasury Department and the Federal Reserve on Tuesday to help prevent a collapse of the student loan market, another financial sector hampered by the collapse of the subprime mortgage industry.

To ensure families continue to have access to student loans, Dodd said the Federal Reserve could use existing monetary policy tools to inject liquidity into the struggling student loan industry, according to a CNNMoney.com article. Dodd also suggested that the Treasury could consider tapping into the Federal Financing Bank, which issues loans at favorable rates.

“If the Fed and Treasury can commit $30 billion of taxpayer dollars to enable the takeover of Bear Stearns by JPMorgan Chase, then surely they can step in to enable working families to achieve their dream of a college education for their kids,” Dodd said in a Senate hearing on April 15.

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Student Loan Blog : Christopher Dodd

Proposed Legislation Would Prevent Student Loan Lenders from ‘Cherry-Picking’ Schools They Lend To

Senator Calls on Fed, Treasury to Ensure Families Can Get Student Loans