Today, Senator Edward M. Kennedy, Chairman of the Senate Health, Education, Labor and Pensions Committee, released the following statement in response to the House Education and Labor Committee markup of legislation related to student loans. Chairman Kennedy introduced student loan legislation last week.
Senator Kennedy's legislation would reduce students' and families' reliance on high-cost private loans by increasing federal aid and would take important steps to strengthen the student loan program. Schools can ensure that students eligible for federally-backed loans can access them through the Direct Loan program, which does not rely on capital from the volatile private market. The Senator has urged schools to consider this option to protect their students. His legislation, however, also takes steps to strengthen the Federal Family Education Loan program to ensure that students can continue to access loans from private lenders if they so choose. The bill provides an alternative capital source for lenders who need it to continue making federal loans, at a minimal cost to taxpayers.
"The turmoil in the credit markets has become a crisis for some lenders -the question for Congress is how to prevent it from becoming a crisis for students." Kennedy said. "The ability of families to afford college should not be determined by the quarterly earnings of banks. The legislation I introduced last week and that is being marked up by Chairman Miller today will ensure that students and families continue to have multiple options for securing the funds they need for college this fall, even if the situation should take a turn for the worse. I am hopeful that the Senate also will act swiftly to enact these provisions to reassure students and families."
Summary of the Strengthening Student Aid Act of 2008
Senator Edward M. Kennedy
Reduce the need for students to depend on non-Federal, higher-interest private loans by
· Increasing annual limits on unsubsidized Federal student loans for dependent undergraduate students by $1,000 each year, with a new aggregate limit of $29,500 (up from $23,000). Loan limits will increase as follows:
o First-year students: $4500, up from $3500;
o Second-year students: $5500, up from $4500;
o Third-year and beyond: $6500, up from $5500.
· Increasing annual limits on unsubsidized Federal student loans for independent undergraduate students and dependent undergraduates whose parents can't obtain parent PLUS loans by $2,000 each year with a new aggregate limit of $57,500 (up from $46,000). Loan limits will increase as follows:
o First-year students: $9500, up from $7500;
o Second-year students: $10,500, up from $8500;
o Third-year and beyond: $12,500, up from $10,500.
Improve federal Parent (PLUS) loans so they are more attractive than private educational loans and home equity lines of credit by
· Allowing for deferral of repayments on parent PLUS loans while the student for whom the loan was taken out remains in school (currently, parents are required to begin repayment of PLUS loans within 60 days of loan disbursement, even if the student for whom the loan is taken out is still in school).
Reduce low income students' dependency on student loan borrowing by
· Increasing Pell Grants for the lowest-income students by authorizing a "negative Expected Family Contribution," which would allow the maximum Pell Grant ($4731 for the 2008-09 academic year) to be increased by up to $750 for students whose expected family contribution is calculated under federal needs analysis to be a negative number, and for those students whose expected family contribution is automatically determined to be zero.
Ensure the availability of Federal student loans by
· Requiring the Secretary of Education to designate guaranty agencies to be a Lender of Last Resort (LLR) on a school-wide level at the institution's request. Currently, LLRs are provided to individual students who are unable to obtain a loan through the Federal Family Education Loan Program. At many colleges, large shares of students have Federal education loans with the same lender. Colleges whose primary lender stops making new loans should have the assurance that a LLR will be ready to step in to offer loans to all of their students; and
· Clarifying the Secretary's authority to advance funds directly from the Treasury to LLRs, without needing a new appropriation by Congress.
Provide additional options for lenders to access capital to make new loans, should the credit market situation continue, by
· Allowing the Department of Education to serve as the secondary market of last resort for loans originated in the FFEL program. Under this provision, the Secretary of Education would be required to buy FFEL loans that lenders want to sell, and would pay a price equal to par (100% of the outstanding principal and any accrued, unpaid interest on the loans) plus a premium equivalent to the cost of originating such loans in the federal Direct Loan program. The terms and conditions on the loans would remain the same as they were when the borrower took out the loan, and the Secretary could contract with the same servicers who previously serviced the loans to ensure a seamless transition for borrowers.