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Government Extends Its Power in Student Lending
Department of Education chief of staff David Dunn
(Ricky Carioti - The Washington Post)
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Now, the department is being asked to issue far more loans this year than it ever has in the past. Last year, the department provided $14 billion in federally guaranteed loans directly to students. This summer, during the peak of the student-lending season, that share is expected to more than double and possibly reach $35 billion, or about half the market, according to FinAid and other analysts.
In addition, the department will likely have to take over the market that consolidates federally guaranteed loans for post-graduates. This is a $37 billion business that allows these borrowers to combine all of their student loans into one package with a single, relatively low rate. Already, lenders representing 77 percent of the consolidation market have dropped out since the start of the credit crisis. Department officials said they are prepared to hire contractors to handle this burden.
Edward M. Kennedy (D-Mass.), who chairs the Senate Health, Education, Labor and Pensions Committee, recently sent a letter to the presidents of all the nation's universities, urging them to join the direct-lending program as soon as possible. He is concerned that a flood of requests to switch to the direct-loan program will come late in the summer and overwhelm the department, aides said. Since the beginning of March, nearly 300 universities and colleges have applied to make their students eligible for direct loans from the government.
Some leading Democrats in Congress have urged the government to take responsibility for providing all federally guaranteed loans. Sens. Hillary Rodham Clinton (D-N.Y.) and Barack Obama (D-Ill.) have both said that, as president, they would hand the entire market to the Department of Education.
At the same time that the department is expanding its direct loan program, its officials are also working with financial experts from several federal agencies, including the Treasury, the Council of Economic Advisers, and the Office of Management and Budget, to plan for purchasing loans from other lenders. Officials familiar with the plan, which is likely to involve money from the Treasury, said it may take weeks to release details.
Kennedy and Rep. George Miller (D-Calif.), who chairs the House Education and Labor Committee, are also preparing a letter that asks the Government Accountability Office to keep a close eye on how the measure is carried out because the department is required to buy student loans in a way that does not result in a loss for taxpayers.
Treasury spokeswoman Jennifer Zuccarelli said, "Recognizing that we are on a tight deadline, we're working around the clock to ensure that funds for student loans will be available this summer."
