New Law Aims To Ease The Lending Crisis For Students

This story was written by Charles Gregg-Geist, Michigan Daily

The nation's current credit crunch has left college students uneasy as they try to find ways to finance their education.

In response, last week the U.S. Congress sent legislation to President Bush to ease the burden families face as they try to procure student loans.

Bush signed the Ensuring Continued Access to Student Loans Act into law May 7. The act allows the Secretary of Education to bail out struggling lenders and increases the annual limit on unsubsidized federal loans by $2,000 per student.

The expansion of the Secretary of Education's powers will primarily affect the Federal Family Educational Loan Program, which buys loans from commercial lenders and resells them to students at a lower rate. But the University of Michigandoesn't participate in FFELP, making it unclear how this part of the legislation will affect students at the University, if at all.

Phil Gay, president of the National Association of Student Financial Aid Administrators, said any effects on the University will be indirect. Increasing the amount of money available through FFELP, he said, may ease the strain on other lending programs, like the Federal Direct Loan Program, in which the University participates. Through the FDLP the federal government lends directly to students.

The Michigan Department of Treasury announced it would withdraw from FFELP because of insufficient funds last month.

Michigan State University, which used to participate in FFELP, announced last week that it will now rely exclusively on FDLP.

Treasury Spokesman Caleb Buhs said that other institutions in the state would likely follow Michigan State's lead and rely on FDLP exclusively.

But Buhs said students at universities that do not use FFELP will benefit, too.

"It will free up some capital for private lenders, which will allow them to originate more loans," he said. "They may be able to make more loans to students in the state, which will be good."

By increasing the amount of unsubsidized loans students are eligible for, Gay said the law will reduce students' dependence on costly private loans.

"In increasing the unsubsidized loan amount that students can get, that does help," he said. "That essentially reduces the amount of private loans they need."

Gay said that NASFAA also lobbied for an increase in Pell Grants to reduce students' reliance on commercial lenders.

But the law signed Wednesday didn't include a raise in Pell Grant awards.

"If they had done what we were recommending, then that would have created a ripple effect," Gay said.

Adam Benson, press secretary for U.S. Rep. John Dingell (D-Dearborn), said in an e-mail interview that Dingell believes Congress has already increased Pell Grants sufficiently through The College Cost Reduction Act. The CCRA, signed into law last September, will increase the maximum Pell Grant award by $100 per year until 2012.

University spokeswoman Kelly Cunningham said officials were studying the legislation to determine what effect it could have on financial aid at the University.