Assurances Offered on U.S. Student Loans

Turmoil in credit markets has not blocked access to federally guaranteed student loans, Education Secretary Margaret Spellings told lawmakers yesterday, but the administration is planning a safety net for students who might need help.

"Let me assure you, and especially students and families, that federal student aid will continue to be available," Spellings testified before the House Education and Labor Committee. "We also understand that credit markets are under stress and conditions may change rapidly."

The credit crunch has caused several lenders to scale back participation in federal loan programs or stop offering the loans altogether. The shift has caused concern among lawmakers and educators about whether students will be able to get loans they need for school this fall without significant delays.

"Our intention today is not to sound a false alarm," Rep. Howard P. "Buck" McKeon (Calif.), the committee's top Republican. "Each of us hopes that the predictions of a loan crisis never come to pass. Part of our purpose today is to identify solutions so that we are prepared whether or not the situation grows worse."

Some students who rely on private loans to bridge the gap between federal aid and rising tuition could find borrowing more costly as credit becomes scarce.

Spellings said more than 2,000 lenders offer federally guaranteed student loans, which have fixed, below-market rates. Even though some large lenders, including the Pennsylvania Higher Education Assistance Agency, have temporarily stopped making such loans, others have stepped up to fill the gap, she said.

Lawmakers questioned Spellings about plans for a "lender-of-last-resort" program, which allows the federal government to dip into its coffers to provide capital to finance federally guaranteed loans. Department officials said they are preparing guidelines for 35 state or nonprofit guaranty agencies, obligated under law to serve as backstop lenders.